A bank has $500,000 in deposits and $475,000 in loans. It has loaned out all it can. It has a reserve ratio of

Question

a.

9.5 percent.
b.

25 percent.
c.

5 percent.
d.

2.5 percent.

Answer 1

To find the reserve ratio, we can use the following formula:

\[ \text{Reserve Ratio} = \frac{\text{Reserves}}{\text{Deposits}} \]

First, we need to determine the reserves. Since the bank has $500,000 in deposits and has loaned out $475,000, we can calculate the reserves as follows:

\[ \text{Reserves} = \text{Deposits} - \text{Loans} = 500,000 - 475,000 = 25,000 \]

Now we can plug the values into the reserve ratio formula:

\[ \text{Reserve Ratio} = \frac{25,000}{500,000} \]

Calculating this gives:

\[ \text{Reserve Ratio} = 0.05 \text{ or } 5% \]

Thus, the reserve ratio is 5 percent, so the correct answer is:

c. 5 percent.