Scenario 29-1
The Monetary Policy of Tazi is controlled by the country's central bank known as the Bank of Tazi. The local unit of currency is the Tazian dollar. Aggregate banking statistics show that collectively the banks of Tazi hold $375 million of required reserves, $225 million of excess reserves, have issued $7,500 million of deposits, and hold $750 million of Tazian Treasury bonds. Tazians prefer to use only demand deposits and so all money is on deposit at the bank.
-Refer to Scenario 29-1. Assume that banks desire to continue holding the same ratio of excess reserves to deposits. What is the reserve requirement and the reserve ratio for Tazian Banks?
A)8 percent, 10 percent
B)5 percent, 10 percent
C)5 percent, 8 percent
D)8 percent, 5 percent

Question

Quizplus · Accepted Answer

The reserve requirement is calculated as required reserves divided by deposits, which is $375 million / $7,500 million = 5 percent. The reserve ratio includes both required and excess reserves, which is ($375 million + $225 million) / $7,500 million = 8 percent.

Scenario 29-1 The Monetary Policy of Tazi Is Controlled by the Country's