Question

A bank has a 5 percent reserve requirement, $5,000 in deposits, and has loaned out all it can given the reserve requirement. a. It has $25 in reserves and $4,975 in loans. b. It has $250 in reserves and $4,750 in loans. c. It has $1,000 in reserves and $4,000 in loans. d. None of the above is correct.

Answer 1

Option B is the correct answer.

It has $250 in reserves and $4,750 in loans.

Step-by-step explanation:

5% of $5000.

Reserves = 0.05*$5000 = $250

Loan amount that can be given out = $5000 - $250 = $4750.