If a bank has $400 in deposits and the bank has required reserves of 5%, how much is the bank allowed to loan out?

Question

(deposit * reserves (percentage)) - deposit
*
7 points
$380
$300
$20
$250

Answer 1

To determine how much a bank is allowed to loan out, you first need to calculate the required reserves based on the deposits.

1. Calculate required reserves: \[ \text{Required Reserves} = \text{Deposits} \times \text{Reserve Requirement} \] \[ \text{Required Reserves} = 400 \times 0.05 = 20 \]

2. Calculate how much the bank can loan out: \[ \text{Amount Allowed to Loan Out} = \text{Deposits} - \text{Required Reserves} \] \[ \text{Amount Allowed to Loan Out} = 400 - 20 = 380 \]

Based on this calculation, the bank is allowed to loan out $380.

So, the answer is: $380.