Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
$900
B
$1,000
C
$100
D
$10,000
Understanding the Answer
Let's break down why this is correct
Answer
When a commercial bank has a reserve requirement of 10%, it means that it must keep 10% of any deposit on hand and cannot lend that amount out. If the bank receives a $1,000 deposit, it needs to keep $100 as reserves because 10% of $1,000 is $100. This leaves the bank with $900 that it can lend out to borrowers. For example, if someone wants to take a loan for a car, the bank can lend them that $900 while still meeting the reserve requirement. This system helps banks manage their money while also allowing them to support loans for people and businesses.
Detailed Explanation
The bank must keep 10% of the deposit as reserves. Other options are incorrect because This answer suggests the bank can lend out all the money; This answer shows only the reserve amount.
Key Concepts
Reserve Requirements
Lending Capacity
Monetary Policy
Topic
Commercial Banks and Reserve Requirements
Difficulty
easy level question
Cognitive Level
understand
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