Question

Starting from the situation as depicted by the T-account, if someone deposits $500 into the First Bank of Cantonica, 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

$400

Step-by-step explanation:

The computation of the amount of new loans is

= Deposit amount - Deposit amount into the First Bank of Cantonica × reserve ratio

where,

Deposit amount in First Bank of Cantonica = $500

And, the reserve ratio is

= ($2,000 ÷ $10,000) × 100

= 20%

So the new amount is

= $500 - $500 × 20%

= $500 - $100

= $400

We simply applied the above formula