Assuming the ABC bank has excess reserves of $5,000, it could prudently expand its loans by a maximum of?

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I am not sure that this question can be answered given the information you have provided.

Legally, the bank may expand its loans by a maximum of $5,000.  It is only required to keep required reserves.  There is nothing that says it must keep excess reserves.

Now, as far as...

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I am not sure that this question can be answered given the information you have provided.

Legally, the bank may expand its loans by a maximum of $5,000.  It is only required to keep required reserves.  There is nothing that says it must keep excess reserves.

Now, as far as what is "prudent," it totally depends on the situation.  If the bank has a lot of loans that it thinks might go bad, maybe it needs to keep all $5,000.  Or if the economy is bad and it does not think new loans would be safe it should keep all $5,000.  But that totally depends on the bank's financial situation and on what sort of new loans (risky or not) it could potentially give out.

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