Question

When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and the bank chooses not to hold any excess reserves but makes loans instead, then, in the bank's final balance sheet Question 14 options: A) the liabilities of the bank increase by $800,000. B) reserves increase by $160,000. C) the liabilities of the bank increase by $1,000,000. D) the assets at the bank increase by $800,000.

Answer 1

C) the liabilities of the bank increase by $1,000,000

Step-by-step explanation:

Data provided in the question

The amount deposited at a bank = $1 million

Required reserve ratio = 20%

By the above information, we can interpret that the liabilities of the bank are increased by $1,000,000 as the same amount is deposited at the bank that reflects the asset for the bank but at the maturity, it would become the liability of the bank.