Question

starting from the situation as depicted by the t-account, if someone deposits $500 into the first bank of johnson city, and if the bank makes new loans so as to keep its reserve ratio unchanged, then the amount of new loans that it makes will be:

Answer 1

If the bank wants to keep its reserve ratio unchanged, it will need to increase its reserves by 5% of the $500 deposit. This means the bank will need to set aside $25 as reserves and can loan out the remaining $475.

Step-by-step explanation:

To answer this question, we need to understand the concept of reserve ratio. The reserve ratio is the percentage of deposits that a bank must hold in reserves, meaning they cannot be loaned out. In this case, if the bank wants to keep its reserve ratio unchanged, it will need to increase its reserves by 5% of the $500 deposit. This means the bank will need to set aside $25 as reserves and can loan out the remaining $475.