Question

1.Following a new deposit of $1000, the loans of a commercial bank increase by $900. In...

1.Following a new deposit of $1000, the loans of a commercial bank increase by $900. In this situation, the desired reserve ratio is most likely

a.0 percent.

b.10 percent.

c.90 percent.

d.190 percent.

2. If a bank holds $10,000 in desired reserves in order to meet a desired reserve ratio of 10 percent, demand deposits must equal

a.$10,000

b.$20,000

c.$50,000

d.$100,000

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Homework Answers

Answer #1

(1)

Formula :

Reserves = Deposits - Loan =. Reserves = 1000 - 900 = 100

Assuming this all reserve to be desired reserve. We have desired reserve ratio = (Desired reserve/demand deposits)*100

=> Desired reserve ratio = (100/1000)*100 = 10%

Hence, the correct answer is (b) 10 percent.

(2)

Formula :

Desired reserve ratio = (Desired reserve/demand deposits)*100

=> 10 = (10,000/demand deposits)*100

=> Demand deposits = $100,000

Hence, the correct answer is (d) $100,000

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