Suppose that an economy has $200,000 of demand deposits and $40,000 of excess reserves, with a 10% required reserve ratio. If the monetary authorities raise the required reserve ratio to 20%:

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Currently, the required reserves are 10% of demand deposits, or $20,000 ($200,000 x 10%). Excess reserves are $40,000 - $20,000 = $20,000. If the required reserve ratio is raised to 20%, then the required reserves will be $40,000 ($200,000 x 20%). This means that the amount of required reserves will increase by $20,000, thus leaving no more excess reserves and decreasing the excess reserves by $20,000.

Suppose That an Economy Has $200,000 of Demand Deposits and $40,000