When bank deposits increase from $1 million to $2 million, banksʹ required reserves increase from $100,000 to $200,000. The required reserve ratio is _____________.
A) 0.25
B) 1.00
C) 10.0
D) 0.10

Question

Quizplus · Accepted Answer

Required reserve ratio = Required reserves / Deposits
Initially, Required reserve ratio = $100,000 / $1,000,000 = 0.10 or 10%
After deposits increased to $2 million, Required reserves = $200,000. So, Required reserve ratio = $200,000 / $2,000,000 = 0.10 or 10%. Therefore, the answer is (D) 0.10.

When Bank Deposits Increase from $1 Million to $2 Million