Question

The ponderosa bank receives a new deposit of $2,500. the reserves requirement is 20 percent. How much can this bank loan out as a result of this deposit?

Answer 1

$2,000 bank loan out as a result of this deposit.

Banks create new money by making loans. Banknotes issued by banks are not stamped with the stamp of the federal reserve bank. It is electronic money that glows on the screen when checking the balance at an ATM. Banks can generate money through the accounts they use when making loans.

Therefore, when the bank receives additional deposits, it receives an equal amount of reserves. If you lose your deposit, you lose an equal amount of your reserve.

A deposit is a financial term that means money held in a bank. A deposit is a transaction of transferring funds to another party for safekeeping.

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