Suppose the ABC bank has excess reserves of $4,000 and outstanding demand deposits of $80,000.If the desired reserve ratio is 25 percent, what is the size of the bank's actual cash reserves?
A)$16,000
B)$84,000
C)$24,000
D)$20,000

Question

Quizplus · Accepted Answer

The desired reserve ratio is 25%, which means that the bank should hold 25% of its outstanding demand deposits as reserves. Therefore, the required reserves for ABC bank is:

$80,000 x 0.25 = $20,000

Since the bank has excess reserves of $4,000, the size of the bank's actual cash reserves is:

$20,000 + $4,000 = $24,000

Therefore, the correct answer is option C, $24,000.

Suppose the ABC Bank Has Excess Reserves of $4,000 and Outstanding