If actual cash reserves in the banking system are $8,000, demand deposits are $70,000, and the desired reserve ratio is 10 percent, then excess reserves:
A)are zero.
B)are $1,000.
C)are $2,000.
D)cannot be determined from this information.

Question

Quizplus · Accepted Answer

The desired reserve ratio is 10 percent, so banks should hold at least 10 percent of their demand deposits as reserves.

Reserves = 10% of $70,000 = $7,000

However, actual reserves in the banking system are only $8,000, so excess reserves = actual reserves - required reserves

Excess reserves = $8,000 - $7,000 = $1,000.

Therefore, the correct answer is B.

If Actual Cash Reserves in the Banking System Are $8,000