Use the following example to answer the following questions:
Imagine that Stella deposits $25,000 in currency (which she had been storing in her closet)into her checking account at the bank.Assume that this institution has a required reserve ratio of 25 percent.
-As a result of this deposit,by how much will the bank's excess reserves increase?
A) $0
B) $18,750
C) $25,000
D) $31,250
E) $100,000

Question

Quizplus · Accepted Answer

The required reserve ratio is 25 percent, meaning that the bank must hold on to 25 percent of the deposit as reserves. Therefore, the initial increase in reserves is $25,000 x 0.25 = $6,250. The remaining portion of the deposit, $18,750, becomes excess reserves. Therefore, the bank's excess reserves increase by $18,750.

Use the Following Example to Answer the Following Questions