If actual cash reserves in the banking system are $40,000, excess reserves are $10,000, and demand deposits are $240,000, then the desired reserve ratio:
A)is 10 percent.
B)is 12.5 percent.
C)is 20 percent.
D)cannot be determined from this information.

Question

Quizplus · Accepted Answer

The desired reserve ratio is calculated by dividing the required reserves by the demand deposits. Required reserves are actual reserves minus excess reserves, which is $40,000 - $10,000 = $30,000. The desired reserve ratio is $30,000 / $240,000 = 0.125 or 12.5 percent.

If Actual Cash Reserves in the Banking System Are $40,000