Liabilities and reserves increase by the amount of the loan

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Reference no: EM131094509

Evaluate the following statement

" When a bank issues a loan, its liabilities and reserves increase by the amount of the loan" on the basis of the following assumptions:

i) Reserves of the bank = $100 million

ii) Existing loans = $900 million

iii) Required reserve ratio is 10%

Now suppose that deposits and loans increase by $50 million simultaneously.

Reference no: EM131094509

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