The following are simplified consolidated balance sheets for the chartered banking system and the Bank of Canada.Do not cumulate your answers; that is, do return to the data given in the original balance sheets in answering each question.Assume a desired reserve ratio of 5 percent for the chartered banks.All figures are in billions of dollars.CONSOLIDATED BALANCE SHEET: CHARTERED BANKING SYSTEM BALANCE SHEET: BANK OF CANADA
Refer to the above information.The chartered banks have excess reserves of:
A)$1
B)$6
C)$20
D)$0

Question

The following are simplified consolidated balance sheets for the chartered banking system and the Bank of Canada.Do not cumulate your answers; that is, do return to the data given in the original balance sheets in answering each question.Assume a desired reserve ratio of 5 percent for the chartered banks.All figures are in billions of dollars.CONSOLIDATED BALANCE SHEET: CHARTERED BANKING SYSTEM  BALANCE SHEET: BANK OF CANADA
 Refer to the above information.The chartered banks have excess reserves of:
A)$1 
B)$6 
C)$20 
D)$0

Quizplus · Accepted Answer

To calculate excess reserves, we need to subtract required reserves from total reserves. Required reserves for chartered banks = 5% of demand deposits = 0.05 x 60 = $3 billion. Total reserves for chartered banks = $15 billion. Excess reserves = Total reserves - Required reserves = $15 billion - $3 billion = $12 billion. However, we need to look at the Bank of Canada's balance sheet to see if there are any changes to the required reserves. From the Bank of Canada's balance sheet, we see that required reserves are $4 billion. So, excess reserves for chartered banks = Total reserves - Required reserves = $15 billion - $4 billion = $11 billion. Therefore, the correct answer is A) $1.

The Following Are Simplified Consolidated Balance Sheets for the Chartered