Assets Liabilities Net Worth Reserves $100,000 Checkable Deposits $300,000 Loans 140,000 Stock Shares 200,000 Securities 60,000 Property 200,000The accompanying balance sheet is for the First Federal Bank. Assume the required reserve ratio is 20 percent. This bank can safely expand its loans by a maximum of Multiple Choice $40,000. $200,000. $20,000. $100,000.

The answer is $200,000

Explanation:

Solution

First step to take is to calculate the money multiplier which is given as:

= 1 / the reserve ratio required = 1 / 0.20 = 5

Now,

Since we know that reserve requirement is 20% of check able deposits. The amount of check able deposits is now $300,000. So reserve requirement will be defined as:

= 20% of 300,000 = $60000.

Now excess reserves will be = Reserves held - required reserves = 100000 - 60000 = $40000

Thus,

The Expansion in deposits and loans is = excess reserves * money multiplier

Which is,

= 40000 x 5 = $200,000