3 years ago

The balance sheet below is for the First Federal Bank. Assume the required reserve ratio is 20 percent.

Business

1 answer:

lord [1]3 years ago

3 0

Answer:

The answer is option (3) $200,000

Explanation:

Solution

Given that:

The reserve ratio =20%

The Required reserves = 300000*20/100

=60000

The excess reserves = 100000-60000

=$40000

Thus

The Money multiplier = 1/0.20

= 5

Therefore, maximum amount by which loans could be expanded = 40000*5

= $200000

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