Suppose a chartered bank has demand deposits of $500,000 and the desired reserve ratio is 10 percent.If the institution has excess reserves of $4,000, then its actual cash reserves are:
A)$46,000
B)$50,000
C)$4,000
D)$54,000

Question

Quizplus · Accepted Answer

The desired reserve ratio is 10%, which means that the bank needs to hold 10% of its demand deposits in reserve.

Reserves = Required reserves + Excess reserves

We know that the excess reserves are $4,000, so we can use the formula above to solve for the actual cash reserves.

$500,000 x 0.10 = $50,000 (required reserves)

$50,000 + $4,000 = $54,000 (actual cash reserves)

Therefore, the best choice is D, with an actual cash reserves of $54,000.

Suppose a Chartered Bank Has Demand Deposits of $500,000 and the Desired