Use the information in the bank balance sheet below to answer these questions. T

Question

Use the information in the bank balance sheet below to answer these questions. The required reserve ratio is 0.25, or 25%. -------------------------------------------------------------------------------- Assets Liabilities -------------------------------------------------------------------------------- Reserves $1,200 Deposits $4,000 Loans $2,800 -------------------------------------------------------------------------------- Total $4,000 Total $4,000 -------------------------------------------------------------------------------- 6.2. Which of the following occurs after this bank makes a $100 loan to Matt? Assume that Matt deposits the entire loan into a checking account at the same bank. A. On the asset side of the balance sheet, the bank's total reserves increase by $100 and the bank's loans decrease by $100. B. On the asset side of the balance sheet, the bank's total reserves decrease by $100 and the bank's loans increase by $100. C. On the asset side of the balance sheet, the bank's total reserves increase by $100 and on the liability side the deposits in the bank increase by $100. D. On the asset side of the balance sheet, the bank's loans increase by $100 and on the liability side the deposits in the bank increase by $100.

Explanation / Answer

D. On the asset side of the balance sheet, the bank's loans increase by $100 and on the liability side the deposits in the bank increase by $100.

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