Suppose the banks in the Federal Reserve System have $200 billion in transactions accounts,the required reserve ratio is 0.15,and there are no excess reserves in the system.If the required reserve ratio is changed to 0.10,the amount of excess reserves would be

Question

Quizplus · Accepted Answer

Initially, with a required reserve ratio of 0.15, banks would be required to hold $30 billion in reserves (0.15 x $200 billion). Since there are no excess reserves, they would have exactly $30 billion in reserves.

If the required reserve ratio was decreased to 0.10, banks would only be required to hold $20 billion in reserves (0.10 x $200 billion). However, since they were previously holding $30 billion in reserves, there would be an excess of $10 billion in reserves ($30 billion - $20 billion). This is a positive amount of excess reserves. Therefore, the answer is C) Positive $10 billion.

Suppose the Banks in the Federal Reserve System Have $200