If a bank has $1,000,000 in reserves and checking deposits of $3,000,000, what is the bank's reserve position if the required reserve ratio is 20 percent?
A)The bank has $500,000 of required reserves and $500,000 of excess reserves.
B)The bank has $600,000 of required reserves and $400,000 of excess reserves.
C)The bank has $400,000 of required reserves and $600,000 of excess reserves.
D)The bank has $200,000 of required reserves and $800,000 of excess reserves.

Question

Quizplus · Accepted Answer

The required reserve ratio is 20 percent, so the required reserves are 0.20 x $3,000,000 = $600,000. The bank has reserves of $1,000,000, so $600,000 are required and $400,000 are excess.

If a Bank Has $1,000,000 in Reserves and Checking Deposits