Suppose a bank has $100 million in chequing account deposits with no excess reserves and the desired reserve ratio is 10 percent.If commercial banks raise the desired reserve ratio to 15 percent, then the bank will now have excess reserves of

Question

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Initially, the bank holds $10 million in reserves (10% of $100 million). With a new reserve ratio of 15%, the bank needs $15 million in reserves. Therefore, it is short by $5 million, resulting in excess reserves of -$5 million (or a deficit of $5 million).

Suppose a Bank Has $100 Million in Chequing Account Deposits