With an increase in the reserve requirement, the maximum amount of new loans that this bank can make is $2,000. Hence, Option B is correct.
<h3>What is
the reserve requirement?</h3>
The amount that is required by a commercial bank to reserve from deposits in order to guarantee that there is always enough liquidity to meet customer withdrawals is known as the reserve requirement.
It refers to the portion of deposits that commercial banks are prohibited from lending against. In the given case, the amount of new loans that a bank can make is computed as follows:
The required reserve is given as follows:
Initial Required Reserve = 20% ∗ $40,000
Initial Required Reserve =$8,000
Now, when the required reserve increases to 25%, then the new required reserve is expressed as
New Required Reserve=25%∗$40,000
New Required Reserve=$10,000
Thus, the maximum amount that can now be given as loans is as follows:
Maximum Loan amount=$10,000−$8,000
Maximum Loan amount=$2,000
Thus, Option B is correct.
Learn more about the reserve requirement from here:
brainly.com/question/15966594
#SPJ4
The complete question is attache in text form:
A bank has excess reserves of $5,000 and demand deposits of $40,000; the reserve requirement is 20%. If the reserve requirement is increased to 25%, the maximum amount of new loans this bank can make is:
a. $1,500.
b. $2,000.
c. $2,500.
d. $3,000.
