When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and the bank chooses not to hold any excess reserves but makes loans instead, then, in the bank's final balance sheet, a. reserves increase by $160,000. b. the liabilities of the bank increase by $1,000,000. c. the assets at the bank increase by $800,000. d. the liabilities of the bank increase by $800,000.

C

Explanation:

When the bank receives $ 1 million, because of the required reserve ratio, $200,000 would be subtracted ($1,000,000*0,2=$200,000). If the bank chooses not to hold any excess reserves then the remaining amount is $800,000. The bank decides to make a loan with this amount, which means a bank´s customer will receive $800,000. At the moment the customer receives this amount, he or she gets a debt with the bank. In the bank´s balance, there is a increase in assets because the bank will receive this amount of money in the future; the bank´s customer has a legal obligation to pay the debt. Is not a increase in liabilities because the bank has no obligation to pay, conversely, the bank will receive this amount.

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