Question

A bank currently has $100,000 in checkable deposits and $15,000 in actual reserves. If the reserve ratio is 20 percent, the bank has ________ in money-creating potential. If the reserve ratio is 14 percent, the bank has __________ in money-creating potential.$3,000; $2,100$20,000; $14,000-$5,000; $1,000$5,000; $1,000

Answer 1

Answer: Option (C) is correct.

Explanation:

Given that,

Check-able deposits = $100,000

Actual reserves = $15,000

(a) Reserve ratio = 20%

Required reserve = 20% of 100,000

                             = $20,000

Money creating potential = Actual reserves - Required reserve

                                          = $15,000 - $20,000

                                          = -$ 5,000

(b) Reserve ratio = 14%

     Required reserve = 14% of 100,000

                                   = $14,000

Money creating potential = Actual reserves - Required reserve

                                          = $15,000 - $14,000

                                          = $1,000