Bank ABC's reserve account at the Federal Reserve contains $44.5 million,its vault cash is $1.1 million,and its checkable deposits equal $400 million.If the required reserve ratio (r)is 10 percent,it follows that Bank ABC's required reserves equal __________ million,and its excess reserves equal __________ million.

Question

Quizplus · Accepted Answer

Required reserves are calculated as 10% of checkable deposits, which is $400 million * 10% = $40 million. Excess reserves are calculated as total reserves (vault cash + reserve account at the Federal Reserve) minus required reserves, which is ($44.5 million + $1.1 million) - $40 million = $5.6 million.

Bank ABC's Reserve Account at the Federal Reserve Contains $44