Table 29-4.
The First Bank of Fairfield
-Refer to Table 29-4. Starting from the situation as depicted by the T-account, if someone deposits $500 into the First Bank of Fairfield, and if the bank makes new loans so as to keep its reserve ratio unchanged, then the amount of new loans that it makes will be
A)$40.
B)$437.50.
C)$71.42.
D)$428.57.

Question

Table 29-4.
The First Bank of Fairfield 
-Refer to Table 29-4. Starting from the situation as depicted by the T-account, if someone deposits $500 into the First Bank of Fairfield, and if the bank makes new loans so as to keep its reserve ratio unchanged, then the amount of new loans that it makes will be
A)$40. 
B)$437.50. 
C)$71.42. 
D)$428.57.

Quizplus · Accepted Answer

The bank's reserve ratio is 10%, so it must hold $50 in reserves for every $500 in deposits. This means that the bank can make new loans of $450 ($500 - $50).

Table 29-4. The First Bank of Fairfield