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A single bank has a reserve requirements of 10%.  This means that if a customer...

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Mizdee | Student, Undergraduate | (Level 1) Valedictorian

Posted October 15, 2012 at 3:21 AM via web

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A single bank has a reserve requirements of 10%.  This means that if a customer deposits $100 million, the bank may lend out?

a.  $9 million

b.  $10 million

c.  $90 million

d.  $91 million

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted October 15, 2012 at 3:37 AM (Answer #1)

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The answer here is C.  The bank in this case would be able to lend out $90 million.

The reserve requirement for a bank is the percentage of its deposits that it must keep on hand.  The rest of the money can be lent out.  Banks want to lend so that they can make money.  However, they must also keep reserves so they do not fail if they have some loans go bad.

When we say, then, that the reserve requirement is 10% that means that the bank must keep 10% of its deposits and it may lend out 90%.  90% of $100,000 is $90,000.  Therefore, C is the right answer.

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