Question

Mr. Squarepants deposited $10,000 cash into his account at Bank A. If the required reserve ratio is 10%, Bank A has to keep _____ in the form of required reserves and can make a loan equal to _____. Group of answer choices

Answer 1

Answer:

Keep $1000

Loan $9000

Explanation:

Reserve ratio is the requirement of the central bank that commercial banks must hold unto a certain portion of deposits at all time rather than investing or lending out in order to meet any large and unexpected demand for withdrawal. It is used to control the money supply in the society and influence interest rate.

If the reserve ratio is 10% . This means that 10% of the deposit must be kept as reserve in the bank and the maximum amount available to be given out is 90%

Workings

10% of 10000 = 1000

90% of 10,000 = 9000