Question

Say the reserve requirement is 20 percent. If you pay back a loan of $10,000 a bank had previously made to you, the act of paying back the loan:_______
a. adds $10,000 in bank reserves.
b. eliminates $2,000 in bank reserves.
c. eliminates $10,000 in bank reserves.
d. adds S2,000 in bank reserves.

Answer 1

Answer:

a. adds $10,000 in bank reserves.

Explanation:

Given that

Reserve requirement is 20%

Now if you want to pay back the loan of $10,000 so here the act of paying back the loan is that the amount of loan i.e. $10,00 would get added to the bank reserves

Therefore as per the given situation, the option a is correct

And, the same is to be considered

Thus, all the other options are incorrect