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 percent, what is the amount of deposits they have?

Question

Quizplus · Accepted Answer

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

If All the Commercial Banks in the Banking System Collectively