$$\begin{array} { | l | c | }
\hline \text { Reserves } & \$ 100 \
\hline \text { Checkable Deposits } & 1,000 \
\hline \text { Loans (to customers) } & 300 \
\hline \text { Property } & 400 \
\hline \text { Securities (owned) } & 300 \
\hline \text { Stock Shares } & 100 \
\hline
\end{array}$$ Refer to the accompanying table of information for the Moolah Bank, and assume that Moolah bank is "loaned up." If it receives a $100 deposit of currency, it could safely expand its loans by
A) $100.
B) $90.
C) $900.
D) $1,000.

Question

$$\begin{array} { | l | c | } 
\hline \text { Reserves } & \$ 100 \
\hline \text { Checkable Deposits } & 1,000 \
\hline \text { Loans (to customers) } & 300 \
\hline \text { Property } & 400 \
\hline \text { Securities (owned) } & 300 \
\hline \text { Stock Shares } & 100 \
\hline
\end{array}$$ Refer to the accompanying table of information for the Moolah Bank, and assume that Moolah bank is "loaned up." If it receives a $100 deposit of currency, it could safely expand its loans by
A) $100.
B) $90.
C) $900.
D) $1,000.

Quizplus · Accepted Answer

Moolah bank is "loaned up," meaning that it has already lent out all of its excess reserves. Therefore, it cannot expand its loans by the full amount of the deposit. Instead, it must hold a fraction of the deposit as reserves and can only lend out the rest. The reserve requirement is not given in the table, but assuming a reserve requirement of 10%, Moolah bank would need to hold $10 of the deposit as reserves ($100 deposit x 10% reserve requirement). This leaves $90 that could be safely expanded as loans ($100 deposit - $10 reserves = $90). Therefore, the correct answer is B.

Refer to the Accompanying Table of Information for the Moolah