A bank has no excess reserves and demand deposit liabilities of $100,000 when the required reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent,the bank's excess reserves will now be

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Initially, with a 20% reserve ratio, the bank needs to hold $20,000 (20% of $100,000) in reserves. When the reserve ratio is increased to 25%, the bank now needs to hold $25,000 (25% of $100,000) in reserves. Since the bank had no excess reserves to begin with, this increase in required reserves by $5,000 creates a shortfall, or negative excess reserves, of -$5,000.

A Bank Has No Excess Reserves and Demand Deposit Liabilities