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3 years ago

Banks can make additional loans when required reserves are

Business

1 answer:

neonofarm [45]3 years ago

3 0

Answer:

See Below

Explanation:

When the reserve requirements are less for banks, they are able to make additional loans.

The banks' ability to make loans is largely determined by the credit multiplier.

The larger the credit multiplier the greater the amount of loans they can make.

Credit multiplier = 1 / Reserve ratio

For example a a reserve ratio of 10% means that with each additional deposit, banks can make loans of 1/0.10 = 10 times the amount deposited. The lesser the reserve requirement the higher the credit multiplier and thus the more the amount banks can loan.

Hope that helps.

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