The banks on Sunny Island have deposits of $4 million, reserves of $600,000, and loans of $2.4 million.The desired reserve ratio is 10 percent.The banks have _______ of desired reserves and _______ of excess reserves.

Question

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The desired reserves are 10% of $4 million in deposits, which is $400,000. The banks already have $600,000 in reserves. Therefore, they have $400,000 of desired reserves and $200,000 ($600,000 - $400,000) of excess reserves.

The Banks on Sunny Island Have Deposits of $4 Million