If a bank has $10 million of demand deposits, a desired reserve ratio of 10 percent, and it holds $2 million in reserves, then it will not have enough reserves to support a deposit outflow of ________.

Question

Quizplus · Accepted Answer

The bank needs to hold $1 million in reserves (10% of $10 million). With $2 million in reserves, it can support a deposit outflow of $1 million, leaving $1 million in reserves. An outflow of $1.2 million would leave only $0.8 million in reserves, which is below the required $1 million.

If a Bank Has $10 Million of Demand Deposits, a Desired