Suppose transaction accounts carry a reserve requirement of 10 percent and savings accounts, 3 percent. A commercial bank holds $100 million in savings accounts and $200 million in demand deposits but no other transaction accounts. Its required legal reserve is $39 million.

Question

Quizplus · Accepted Answer

The required reserve for savings accounts is $3 million (3% of $100 million), and for demand deposits, it is $20 million (10% of $200 million). The total required reserve is $23 million, not $39 million.

Suppose Transaction Accounts Carry a Reserve Requirement of 10 Percent