Question

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A bank has a reserve requirement of 10 percent. This means that if a customer deposits $10,000, the bank may increase lending by:
A. $1,000.
B. $9,000.
C. $10,000.
D. $11,000.

Answer 1

The Correct "OPTION is (B). $9,000."

The Bank may increase Lending by (B). $9,000.

Explanation Below:-

Given Data,

Bank has a Reserve Requirement = 10% = 0.10

Customer Deposits = $10,000

Here, We have to Find the amount That bank may increase Lending By which can Be found By the FollowS:-

Excess Reserve Created = Customer Deposit - Required Reserve

Where,

Customer Deposit = $10,000

So, We have To find the Required Reserve

Required Reserve = Customer Deposits * Reserve Requirement

Required Reserve = $10,000 * 0.10

Required Reserve = $1,000

Substituting the Respective value in the Formula:-

Excess Reserve Created = Customer Deposit - Required Reserve

Excess Reserve Created = $10,000 - $1,000

Excess Reserve Created = $9,000.

So the Bank May increase Lending By OPTION (B). $9,000