The Vancouver Bank's balance statement is as follows: All figures are in billions. Refer to the above information and, assuming that desired reserve ratio is 10 percent, after a cheque for $20,000 is drawn and cleared against this bank, its excess reserve will be:

Question

The Vancouver Bank's balance statement is as follows: All figures are in billions.  Refer to the above information and, assuming that desired reserve ratio is 10 percent, after a cheque for $20,000 is drawn and cleared against this bank, its excess reserve will be:

Quizplus · Accepted Answer

The desired reserve ratio is 10%. This means that the bank must hold $5 billion (10% of $50 billion) as reserves. Before the cheque is cleared, the bank's actual reserves are $6 billion, which means it has excess reserves of $1 billion.

When the cheque for $20,000 is cleared, the bank's deposits will decrease by $20,000. The bank must now hold 10% of the new deposit amount as reserves, which is $4.988 billion ($49.988 billion x 0.10).

Since the bank's actual reserves are currently $7 billion, it already exceeds the required reserves of $4.988 billion by $2.012 billion. Therefore, after the cheque is cleared, the bank's excess reserves will be $2.012 billion, which is equivalent to $2,012,000,000 or $2.012 billion.

However, the options only present answers in thousands, so we need to divide the excess reserves by 1,000. 
$2.012 billion ÷ 1,000 = $2,012,000 
Therefore, the closest answer choice is C, $9,000.

The Vancouver Bank's Balance Statement Is as Follows: All Figures