Question

ayye i neeed some help. (:

If the reserve rate is 4% and a bank receives a deposit of $12,000, how much of the $12,000 is the bank free to loan out?

A. $11,520
B. $7200
C. $480
D. $4800

Answer 1

Well, the reserve might be $12,000 * 0.04 = $480. What does that leaver to loan out?

Answer 2

$11,520

Answer 3

There you have it.

Warning!! It likely doesn't work this way. The bank may take a much broader view.

1) I just received $12,000 in cash.
2) This IS the reserve, $12,000
3) Therefore, if I just keep the $12,000, I can now loan out, $12,000/0.04 = $300,000!!

It's just another way to think about it, but this did not seem to be the intent of the problem statement.