A bank has a 5 percent reserve requirement,$5,000 in deposits,and has loaned out all it can given the reserve requirement.
A)It has $25 in reserves and $4,975 in loans.
B)It has $250 in reserves and $4,750 in loans.
C)It has $1,000 in reserves and $4,000 in loans.
D)None of the above is correct.

Question

Quizplus · Accepted Answer

The bank has $5,000 in deposits and a 5 percent reserve requirement, which means it must keep 5 percent of its deposits as reserves.

5% of $5,000 = $250

Therefore, the bank has $250 in reserves.

Since it has loaned out all it can given the reserve requirement, the remaining amount must be in loans.

Total loans = Total deposits - Reserves

Total loans = $5,000 - $250 = $4,750

So, the correct choice is B.

A Bank Has a 5 Percent Reserve Requirement,$5,000 in Deposits,and