Consolidated balance sheet for the chartered banking system.Assume the desired reserve ratio is 10 percent.All figures are in billions. Refer to the above information.After a deposit of $10 billion of new currency into a chequing account in the banking system, excess reserves will increase by:
A)$0 billion.
B)$7 billion.
C)$9 billion.
D)$10 billion.

Question

Consolidated balance sheet for the chartered banking system.Assume the desired reserve ratio is 10 percent.All figures are in billions.  Refer to the above information.After a deposit of $10 billion of new currency into a chequing account in the banking system, excess reserves will increase by:
A)$0 billion. 
B)$7 billion. 
C)$9 billion. 
D)$10 billion.

Quizplus · Accepted Answer

Since the desired reserve ratio is 10%, the required reserves for the new deposit will be $1 billion (10% of $10 billion). Excess reserves will then increase by the difference between the new deposit and the required reserves, which is $9 billion ($10 billion - $1 billion = $9 billion). Therefore, the correct answer is C.

Consolidated Balance Sheet for the Chartered Banking System