Table 29-6

Question

Bank of Pleasantville
Assets Liabilities
Reserves $3,000 Deposits $50,000
Loans 47,000

Refer to Table 29-6. From the table it follows that the Bank of Pleasantville operates in a
a.

fractional-reserve banking system, since its reserves are less than its deposits.
b.

fractional-reserve banking system, since its reserves are less than its loans.
c.

100-percent-reserve banking system, since its assets are equal to its liabilities.
d.

100-­percent-­reserve banking system if the Fed’s reserve requirement is 10 percent; otherwise, it operates in a fractional-reserve banking system.

Answer 1

To determine the correct answer, we need to analyze the information provided in the table:

• Assets (Reserves + Loans) = $3,000 (Reserves) + $47,000 (Loans) = $50,000
• Liabilities (Deposits) = $50,000

In a fractional-reserve banking system, banks keep a fraction of deposits as reserves and lend out the remainder. In this case:

• The Bank of Pleasantville has reserves of $3,000 and deposits of $50,000. Therefore, the reserves are less than the deposits, indicating that the bank is not holding all deposits as reserves.

Thus, the correct answer is: a. fractional-reserve banking system, since its reserves are less than its deposits.