First National Bank (FNB) has a Reserve Requirement of 10%. Mrs. Jones, a FNB customer, deposits $10,000. A. What is the total amount of new loans that First National Bank can loan out? B. What is the maximum amount of loans created in the banking system? C. What is the maximum impact of the money supply?
A) 10% of $10,000 is kept as reserve. So the bank will loan all but 10% which is $9000 that will be loaned out. B) Not sure what you mean by this one... I am guessing $90,000? C) Whenever a bank with fraction reserve lends out money, the money supply will increase.