Suppose the Fed's required reserve ratio is 12%. Further suppose that the Fed buys $50 million of U.S. Treasury securities from a dealer who deposits the check, which is drawn on the Fed, with Bank A. Bank A's reserve account with the Fed has increased by $50 million and so have its (demand) deposits, its total reserves, and the overall level of M₁. How much has required reserves risen?

Question

Quizplus · Accepted Answer

The required reserves are calculated as 12% of the increase in deposits. Since the deposits increased by $50 million, the required reserves rise by 0.12 * $50 million = $6 million.

Suppose the Fed's Required Reserve Ratio Is 12