Question

When​ $1 million 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, then, in the​ bank's final balance​ sheet, A. reserves increase by​ $160,000. B. the liabilities of the bank increase by​ $1,000,000. C. the assets at the bank increase by​ $800,000. D. the liabilities of the bank increase by​ $800,000.

Answer 1

Answer:

C

Explanation:

When the bank receives $ 1 million, because of the required reserve ratio, $200,000 would be subtracted ($1,000,000*0,2=$200,000). If the bank chooses not to hold any excess reserves then the remaining amount is $800,000. The bank decides to make a loan with this amount, which means a bank´s customer will receive $800,000. At the moment the customer receives this amount, he or she gets a debt with the bank. In the bank´s balance, there is a increase in assets because the bank will receive this amount of money in the future; the bank´s customer has a legal obligation to pay the debt. Is not a increase in liabilities because the bank has no obligation to pay, conversely, the bank will receive this amount.