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Question
The reserve ratio is 20 percent. After the Fed buys $1 million in U.S. government securities from a bond dealer by transmitting the funds to the dealerʹs deposit account at Bank A, Bank A lends a construction company an amount equal to its excess reserves. The construction company spends the entire amount on lumber from a lumber yard, which deposits the construction companyʹs check in its deposit account with Bank A. The maximum loan Bank A can now make is
A) $0.
B) $640,000.
C) $800,000.
D) $1 million.
Answer
This answer is hidden. It contains 1 characters.
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