119k views
2 votes
Suppose a bank does NOT hold any excess reserves (it loans all available reserves) and the reserve ratio is 20%. If Melanie deposits $1,000 of cash into her checking account and the bank lends $600 to Morgan, the bank can lend an additional * $5,000. $1,000. $200. $400. $600.

User RafaelJan
by
4.2k points

1 Answer

6 votes

Answer:

$200

Step-by-step explanation:

Reserve ratio is the percentage of a deposit that a bank is supposed to withhold as reserves forming part of deposit that banks make into federal reserve.

It plays a major role in deciding the amount of money available to be lent and supply of money.

Workings

Reserve ratio - 20%

On a deposit of $1000, The reserve is 20% * 1000 =$200

Assuming no excess reserve , the limit on the deposit is $800

The reserve = $200

Therefore , if $600 is lent , the bank can further lend ($800-$600)

$200

User Aditi
by
3.6k points