If a bank has a reserve ratio of 8 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 8 percent of its assets as reserves and loans out the rest.

Question

Quizplus · Accepted Answer

The reserve ratio of 8 percent means that the bank keeps 8 percent of its deposits as reserves and loans out the rest. This is required by government regulation to ensure the stability of the banking system. Option A is incorrect because the government regulation requires the bank to keep a minimum reserve ratio, not use a certain percentage for loans. Option B is incorrect because it implies that the bank can only lend out 8 percent of its deposits, which is not true. Option D is incorrect because the reserve ratio applies to deposits, not assets.

If a Bank Has a Reserve Ratio of 8 Percent,then