A bank with $200 million in transaction deposits keeps $20 million in cash in the bank vault, $10 million in deposits at the Fed, and $5 million in government securities in the bank vault. Its total reserves equal

Question

Quizplus · Accepted Answer

Total reserves include the required reserve and excess reserve. Required reserve is calculated as a percentage of transaction deposits that banks are required to keep on hand either in their vault or on deposit with the Fed. 
Assuming the required reserve ratio is 10%, the bank would be required to keep $20 million ($200 million * 10%) in its vault or on deposit with the Fed. 
In this case, the bank keeps $20 million in its vault and $10 million on deposit with the Fed, which adds up to required reserves of $30 million ($20 million + $10 million). 
The $5 million in government securities is not considered a part of required reserves. 
Therefore, the total reserves of the bank would be $30 million.

A Bank with $200 Million in Transaction Deposits Keeps $20