If a bank has $100,000 of demand deposits, a desired reserve ratio of 20 percent, and it holds $40000 in reserves, then the maximum deposit outflow it can sustain without altering its balance sheet is ________.

Question

Quizplus · Accepted Answer

The bank needs to maintain 20% of $100,000 in reserves, which is $20,000. Since it holds $40,000 in reserves, it has $20,000 in excess reserves. Therefore, it can sustain a deposit outflow of $25,000, leaving $15,000 in excess reserves, which is still above the required $20,000.

If a Bank Has $100,000 of Demand Deposits, a Desired