Final answer:
The bank is free to lend $6440 of the $7000 deposit. The correct option is D. $6440
Step-by-step explanation:
To determine how much of the $7000 deposit the bank is free to lend, we need to calculate the reserve amount. The reserve rate is 8%, so the bank is required to hold 8% of the deposit as reserves. To find the reserve amount, we multiply the deposit by the reserve rate: $7000 * 0.08 = $560. Therefore, the bank is required to hold $560 as reserves and is free to lend the remaining amount. The bank is free to lend $7000 - $560 = $6440.
The correct option is D. $6440