Question

Suppose ​$200 comma 000 is deposited at a bank. The required reserve ratio is 20 ​percent, and the bank chooses not to hold any excess reserves but makes loans instead. What are the​ bank's total​ loans?

Answer 1

Answer: The bank's total loans amount is $160,000.

Explanation: The bank got a total deposit of $200,000 from its customers. The reserve ratio was given as 20%. The is the cash reserve amount that should be domiciled with Fed. So 20% of $200,000, which is the total deposit is $40,000. This means an amount of $40,000 is the reserved cash. Since the bank has chosen not to keep any excess reserves, it means the bank would be availing a total loans amount of $160,000 (%200,000 - $40,000) to its customers.