Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
$240,000
B
$180,000
C
$120,000
D
$300,000
Understanding the Answer
Let's break down why this is correct
Answer
A bank’s reserve ratio tells it what fraction of its deposits must be kept on hand. The ratio is 12 % of the total deposits. Multiply the deposit amount by the ratio: 0. 12 × $2,000,000 equals $240,000. Therefore, the bank must hold $240,000 in reserve.
Detailed Explanation
The reserve ratio tells how much of the deposits the bank must keep as reserves. Other options are incorrect because It mixes the ratio with a different percentage; This uses the wrong percentage.
Key Concepts
Reserve Requirements
Topic
Commercial Bank Reserves
Difficulty
easy level question
Cognitive Level
understand
Practice Similar Questions
Test your understanding with related questions
1
Question 1If a bank has $1 million in deposits and the reserve requirement is set at 10%, how much must the bank keep in reserve?
easyEconomics
Practice
2
Question 2A local bank has determined that it has $1 million in total deposits. According to the reserve requirement set by the central bank, the required reserve ratio is 10%. The bank has $120,000 in reserves. How should the bank adjust its reserves to comply with the reserve requirement, and what does this indicate about its capability to lend?
mediumEconomics
Practice
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