Suppose the First National Bank acquires $500,000 in new deposits and the required reserve ratio is 12 percent.Which of the following is true?

Question

Quizplus · Accepted Answer

The required reserve ratio is 12%, which means that the bank must hold 12% of the new deposits as required reserves. Therefore, the required reserves on the new deposits are:

$500,000 x 0.12 = $60,000

Excess reserves are the reserves held above and beyond the required reserves. In this case, the excess reserves would be:

Excess reserves = Total reserves - Required reserves
Excess reserves = $500,000 - $60,000
Excess reserves = $440,000

So, the correct answer is C.

Suppose the First National Bank Acquires $500,000 in New Deposits