Question

Bank North's Balance Sheet Assets Liabilities Reserves $400 Deposits $2500 Loans $2600 Capital $500 $3000 $3000 TABLE 26-2 Refer to Table 26-2. Assume that Bank North is operating at its target reserve ratio and has no excess reserves. If Bank North receives a new deposit of $300, it can immediately expand its loans by ________ while maintaining its target reserve ratio.

Select one: A. $272 B. $340 C. $260 D. $252 E. $400

Answer 1

Answer- If Bank North receives a new deposit of $300, it can immediately expand its loans by :

- D $ 252.

Explanation- first of all we have to find our reserve ratio:

There is no excess reserve in bank, it means the entire reserve is required reserve.

Deposits = 2500 (given), Reserve= 400 (given)  

Required reserve = 400/2500 × 100 =16%.

If bank receives new deposits of $ 300, then required reserve against new deposits will be:.

Required reserve= deposits × required reserve

=$300 × 16% = $48.

New loans will be = deposits - required reserv

=$300 - $ 48

= $252.

Bank can expand its loan by $ 252.