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Question & Answer
Choose the Best Answer
The bank needs to hold $100,000 in reserves, allowing it to lend $900,000.
The bank is over the required reserves and can lend $920,000.
The bank must increase its reserves to $100,000, which means it can only lend $900,000.
The bank has excess reserves and can lend the full $1 million.
Understanding the Answer
Let's break down why this is correct
The bank must keep $100,000 in reserves because 10% of $1 million is $100,000. Other options are incorrect because It says the bank needs only $100,000 in reserves and can lend $900,000; It claims the bank can lend $920,000.
Key Concepts
Commercial Bank Reserves
medium level question
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Deep Dive: Commercial Bank Reserves
Master the fundamentals
Definition
Commercial Bank Reserves involves understanding how banks manage their reserves, including required reserves and excess reserves. This topic is crucial in determining a bank's capacity to lend and its adherence to reserve requirements set by regulatory authorities.
Topic Definition
Commercial Bank Reserves involves understanding how banks manage their reserves, including required reserves and excess reserves. This topic is crucial in determining a bank's capacity to lend and its adherence to reserve requirements set by regulatory authorities.
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