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26 February, 03:46

A bank has $200 million in demand deposits and $150 million in reserves. The reserve ratio is 20 percent. What is the maximum amount of loans the bank can make from its reserves?

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  1. 26 February, 05:38
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    maximum amount of loan bank that make reserve is $110 million

    Explanation:

    given data

    demand deposits = $200 million

    reserve = $150 million

    reserve ratio = 20%

    to find out

    maximum amount of loan bank can make reserve

    solution

    we get here excess reserve that is

    excess reserve = deposits * reserve ratio ... 1

    excess reserve = $200 million * 20%

    excess reserves is $40 million

    so maximum amount of loan bank that make reserve is = $150 million - $40 million

    maximum amount of loan bank that make reserve is $110 million
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