Assume the Continental National Bank's balance statement is as shown in the accompanying table. Assuming a legal reserve ratio of 20 percent, how much in excess reserves would this bank have after a check for $10,000
Was drawn and cleared against it?

Question

Quizplus · Accepted Answer

The legal reserve ratio is 20%, which means the bank must keep 20% of its deposits as reserves.

Total deposits = $100,000 
Required reserves = 20% x $100,000 = $20,000

Before the check is cleared, the bank has excess reserves of:
Excess reserves = actual reserves - required reserves
Excess reserves = $30,000 - $20,000 = $10,000

When the $10,000 check is cleared, the bank's total reserves (actual reserves) will decrease by $10,000, as it will need to pay out this amount to the person who deposited the check.

The required reserves will remain the same, as they are calculated based on total deposits.

After the check is cleared, the bank will have excess reserves of:
Excess reserves = actual reserves - required reserves
Excess reserves = ($30,000 - $10,000) - $20,000 = $6,000

Therefore, the correct answer is C) $6,000.

Assume the Continental National Bank's Balance Statement Is as Shown