A bank has $200 million in demand deposits and $150 million in reserves. The reserve ratio is 20 percent. What is the maximum amount of loans the bank can make from its reserves?

Question

Business

Iris Goodwin

14 July, 18:27

A bank has $200 million in demand deposits and $150 million in reserves. The reserve ratio is 20 percent. What is the maximum amount of loans the bank can make from its reserves?

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Answers (1)

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Messiah Hoffman · Answer 1

maximum amount of loan bank that make reserve is $110 million

Explanation:

given data

demand deposits = $200 million

reserve = $150 million

reserve ratio = 20%

to find out

maximum amount of loan bank can make reserve

solution

we get here excess reserve that is

excess reserve = deposits * reserve ratio ... 1

excess reserve = $200 million * 20%

excess reserves is $40 million

so maximum amount of loan bank that make reserve is = $150 million - $40 million

maximum amount of loan bank that make reserve is $110 million