Question

Fiona deposits $2,000 into a savings account. If the Fed requires a 20 percent reserve ratio, how much of Fiona’s money can the bank lend?

Answer 1

It would be 1600 because the 20 percent keeps the bank from loaning the rest

Answer 2

$1600

Step-by-step explanation:

Deposit : $2000

Reserve ratio : 20%

Reserve amount : $400

Amount that can be lent : $1600

Reserve ratio is a central bank requirement that a bank must retain a certain proportion of savings in its reserve and not lent out or invest.This is necessary so that bank can always have the fund to meet sudden demand for withdrawals that might come up .It is also a way of managing excessive flow of money in circulation and guard against inflation.