Question

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?

Answer 1

Answer:

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