If the reserve ratio is 12.5 percent, then $5,600 of money can be generated by Select one: a. $64 of new reserves. b. $700 of new reserves. c. $448 of new reserves. d. $800 of new reserves.

Question

Allison Deleon

Business

7 November, 23:14

If the reserve ratio is 12.5 percent, then $5,600 of money can be generated by Select one: a. $64 of new reserves. b. $700 of new reserves. c. $448 of new reserves. d. $800 of new reserves.

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Helen Hancock · Answer 1

Answer:B. $700 of new reserves.

Explanation: Reserve ratio is the percentages of bank deposits which commercial banks must keep with them and not lend out, this is done by central bank in order to control inflation, interest rates etc

In ordinary terms reserve ratio is the percentage amount that is kept aside for future endeavours. Reserve ratio is very good to protect an organisation or a country during trying times.

A higher reserve ratio will reduce money lending rate and make commercial banks have less amounts to lend out.

If the reserve ratio is 12.5%, the dollar value of the amount that can be reserved from $5600.

The formula is as follows, the reserve ratio divided by one hundred multiplied by the amount. The reserve in Dollar value will be

Equal to (12.5%/100) * $5600 = $700.