Suppose a bank has $100,000 in chequing account deposits with no excess reserves and the desired reserve ratio is 5 percent.If commercial banks lower the desired reserve ratio to 3 percent, then the bank will now have excess reserves of

Question

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With a desired reserve ratio of 5%, the bank needs to hold $5,000 (5% of $100,000) in reserves. Lowering the reserve ratio to 3% means it now needs to hold only $3,000 (3% of $100,000) in reserves. Therefore, the bank will have $2,000 ($5,000 - $3,000) in excess reserves.

Suppose a Bank Has $100,000 in Chequing Account Deposits with No