Suppose a bank has $1 million in deposits, a reserve requirement of 20%, and bank reserves of $400,000. The bank has excess reserves of
A) $50,000.
B) $100,000.
C) $200,000.
D) $300,000.

Question

Quizplus · Accepted Answer

The reserve requirement is 20%, so the required reserves for the bank are:
0.20 x $1,000,000 = $200,000
The bank currently has reserves of $400,000, so the excess reserves are:
$400,000 - $200,000 = $200,000

Suppose a Bank Has $1 Million in Deposits, a Reserve