If all the commercial banks in the banking system collectively have $300 million in cash reserves and are satisfying their target reserve ratio of 20%,what is the amount of deposits they have?

Question

Quizplus · Accepted Answer

The reserve ratio is the fraction of deposits that a bank holds as reserves. If the reserve ratio is 20%, then the reserves are 20% of the deposits. Therefore, if the reserves are $300 million, the deposits are $300 million / 0.20 = $1500 million.

If All the Commercial Banks in the Banking System Collectively