Suppose the required reserve ratio is 10% and the Indianapolis State Bank initially has no need of excess reserves. If a construction company deposits $200,000 in the bank, how much of this deposit could the Indianapolis State Bank loan out?

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1 December, 19:19

Suppose the required reserve ratio is 10% and the Indianapolis State Bank initially has no need of excess reserves. If a construction company deposits $200,000 in the bank, how much of this deposit could the Indianapolis State Bank loan out?

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Valery Matthews · Answer 1

Answer: $180,000

Explanation: Reserve ration of Indianapolis is 10%

A Construction company deposits $200,000 in the bank

How much of the deposit will be given out as loan?

since the reserve ratio is 10%

deposit is $200,000

Reserve ratio of this deposit = 200,000 * 10% = 20,000

The bank can loan out $200000-20000 = $180,000

Therefore the bank can only loan out $180,000 and keep the $20,000 in its reserve.