Scenario 11-1 A Bank's Assets Consist of $500 000 in Total Reserves

Multiple Choice

Scenario 11-1
A bank's assets consist of $500 000 in total reserves, $1 600 000 in loans, and a building worth $1 200 000. Its liabilities and capital consist of $2 000 000 in demand deposits and $1 300 000 in capital.
-Refer to Scenario 11-1.If the desired reserve ratio is 20 percent,what is the level of the bank's excess reserves and how much money could the excess reserves be used to create in the banking system as a result?

A) Excess reserves are $100 000, leading to the creation of $100 000 in the banking system.
B) Excess reserves are $400 000, leading to the creation of $400 000 in the banking system.
C) Excess reserves are $100 000, leading to the creation of $500 000 in the banking system.
D) Excess reserves are $400 000, leading to the creation of $2 000 000 in the banking system.