Question

15. If a bank faces a reserve requirement of 8 percent and has a reserve ratio of 12 percent, then
A. government regulation requires the bank to use at least 8 percent of its deposits to make loans.
B. the bank’s ratio of loans to deposits is 8 percent.
C. the bank keeps 8 percent of its deposits as reserves and loans out the rest.
D. the bank keeps 12 percent of its assets as reserves and loans out the rest.
E. the bank keeps 12 percent of its deposits as reserves and loans out the rest.

16. According to the textbook, which of the following statements is (are) correct?
(x) A bank’s reserve ratio is 15 percent and the bank has $5,000 in deposits. Its reserves amount to $750
(y) A bank’s reserve ratio is 7.5 percent and the bank has $2,250 in reserve. Its deposits amount to $30,000
(z) A bank has $348,125 in required reserves and $2,785,000 in deposits. The reserve requirement must be equal to 12.5 percent of deposits
A. (x), (y) and (z) B. (x) and (y), only
C. (x) and (z), only D. (y) and (z), only
E. (x) only

17. Suppose a bank has a 12.5 percent reserve requirement, $100,000 in deposits, and it loans out all it can given the reserve requirement.
A. It has $1,250 in reserves and $97,750 in loans.
B. It has $12,500 in reserves and $87,500 in loans.
C. It has $12,500 in reserves and $100,000 in loans.
D. It has $87,500 in reserves and $12,500 in loans
E. None of the above is correct.

18. The reserve requirement is 10 percent. A customer deposits $2,000 into a bank. By how much do excess reserves change?
A. $2,000
B. $1,800
C. $200
D. $100
E. $0

Answer 1

15.

Answer: C

A bank has to keep aside the required reserve amount for sure, which is 8% on demand deposit, and the rest could be loan out, which is (12% - 8% =) 4% on that demand deposit.

Banks can provide loan out of the excess reserve only, which is 4% here.

Banks are not permitted to loan out the required reserve.

16.

Answer: A

All are correct.

Statement X: Reserves amount = Deposit × reserve ratio = 5,000 × 15% = $750

Statement Y: Deposit amount = Reserves / reserve ratio = 2,250 / 7.5% = $30,000

Statement Z: Required reserve = (Reserves amount / Deposits) × 100 = (348125 / 2785000) × 100 = 12.5%

Since all these statements are tallying, all these are correct.

17.

Answer: B

In excess of required reserve all the amount of deposit could be loaned out.

Required reserve = Deposit × reserve ratio = 100,000 × 12.5% = $12,500

Loans = Deposit – Required reserve = 100,000 – 12,500 = $87,500

18,

Answer: B

The excess reserve would have been (100 – 10 =) 90%. Excess reserve would increase.

Excess reserve = Deposits × Excess reserve ratio = 2,000 × 90% = $1,800