Suppose a bank gets a new deposit of $100 cash and it has a 20% required reserve ratio. If the bank lends the maximum amount of money allowed, then the checkable deposits (including the original deposit) increase by:

A. $1,000.

B. $20.

C. $500.

D. $100.

Answer:check able deposits = $500correct option is C. $500Explanation:given datacash deposit = $100

reserve ratio = 20%

to find outcheck able deposits

solutionwe will apply here check able deposits formula that is express as

check able deposits = cash deposit + ( deposit cash – ( deposit cash × reserved ratio ) × [tex]\frac{1}{reserve ratio}[/tex] ) ………………………1

put here value we get

check able deposits = $100 + ( $100 – ( $100 × 20% ) × [tex]\frac{1}{0.2}[/tex] )

check able deposits = $500correct option is C. $500