A bank has excess reserves of $1,000 and demand deposit liabilities of $80,000 when the reserve requirement is 25 percent. If the reserve requirement is lowered to 20 percent,the bank's excess reserves will be

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With a reserve requirement of 25%, the bank needs to hold $20,000 (25% of $80,000) in reserves. Since it has excess reserves of $1,000, its total reserves are $21,000. When the reserve requirement is lowered to 20%, it needs to hold only $16,000 (20% of $80,000) in reserves. Therefore, its excess reserves increase to $5,000 ($21,000 total reserves - $16,000 required reserves).

A Bank Has Excess Reserves of $1,000 and Demand Deposit