If the desired reserve ratio is 10 percent, how much excess reserves does a bank acquire when a business deposits a $500 cheque drawn on another bank?
A)$450
B)$550
C)$5000
D)$500

Question

Quizplus · Accepted Answer

If the desired reserve ratio is 10%, the bank is required to hold 10% of its deposits in reserves and can lend out the remaining 90%.

When the business deposits a $500 cheque drawn on another bank, the bank receives $500 in deposits. The bank is then required to hold 10% of $500, which is $50, in reserves.

Therefore, the bank can lend out the remaining $450, which becomes its excess reserves.

Hence, the answer is A) $450.

If the Desired Reserve Ratio Is 10 Percent, How Much