Question

​Suppose the required reserve ratio is 0.1 and Linda deposits $4,000 in cash at the College State Bank. If the bank held no excess reserves before Linda's deposit and now increases its reserves by $500, which of the following is true?

a. The bank has excess reserves of $100
b. The bank must have lent out an additional $4,000.

Answer 1

a. The bank has excess reserves of $100

Step-by-step explanation:

Base on the scenario been described in the question, since the former reserve ratio is 0.1 and after Linda made a deposit of $4,000 with the bank not having any excess reserve

Linda deposits will give the bank a reserve of $4,000×0.1= $400

The bank reserve increase to $500

That mean it has = $500 - $400

= $100 reserve before Linda deposits