If excess reserves in the banking system are $4,000, demand deposits are $40,000, and the desired reserve ratio is 10 percent, then actual cash reserves:
A)are $4,000.
B)are $6,000.
C)are $8,000.
D)cannot be determined from this information.

Question

Quizplus · Accepted Answer

The desired reserves are 10% of $40,000, which is $4,000. Since excess reserves are $4,000, the actual cash reserves are the sum of desired reserves and excess reserves, totaling $8,000.

If Excess Reserves in the Banking System Are $4,000, Demand