Question

Suppose a bank gets a new deposit of $100 cash and it has a 20% required reserve ratio. If the bank lends the maximum amount of money allowed, then the checkable deposits (including the original deposit) increase by:
A. $1,000.
B. $20.
C. $500.
D. $100.

Answer 1

Answer:

check able deposits = $500

correct option is C. $500

Explanation:

given data

cash deposit = $100

reserve ratio = 20%

to find out

check able deposits

solution

we will apply here check able deposits formula that is express as

check able deposits = cash deposit + ( deposit cash - ( deposit cash × reserved ratio ) × $\frac{1}{reserve ratio}$ )     ...........................1

put here value we get

check able deposits = $100 + ( $100 - ( $100 × 20% ) × $\frac{1}{0.2}$ )

check able deposits = $500

correct option is C. $500