Suppose the reserve requirement is 10 percent. If a bank has $5 million of checkable deposits and actual reserves of $500,000, the bank
A) can safely lend out $500,000.
B) can safely lend out $5 million.
C) can safely lend out $50,000.
D) cannot safely lend out more money.

Question

Quizplus · Accepted Answer

With a reserve requirement of 10%, the bank is required to hold $500,000 (10% of $5 million) in reserves. Since it has exactly $500,000 in actual reserves, it meets the reserve requirement but has no excess reserves to lend out.

Suppose the Reserve Requirement Is 10 Percent