Multiple Choice
Suppose that Bank Apollo has a target reserve ratio of 5 percent,$10,000 in demand deposits,and $1,000 in reserves.Assume that the bank makes a loan equal to its excess reserves and the borrower spends this amount at a business that does not use Bank Apollo.What is the net effect on Bank Apollo?
A) It will be neither under- or over-reserved.
B) It will be over-reserved by $500.
C) It will be under-reserved by $500.
D) It will be under-reserved by $25.
E) Its reserve status is unaffected.
Correct Answer:
Verified
Correct Answer:
Verified
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