If actual reserves in the banking system are $40,000, excess reserves are $10,000, and checkable deposits are $240,000, then the legal reserve requirement is
A) 10 percent.
B) 12.5 percent.
C) 20 percent.
D) 5 percent.

Question

Quizplus · Accepted Answer

The legal reserve requirement is the percentage of checkable deposits that banks are required to hold as reserves. To calculate the reserve requirement, we need to divide actual reserves by checkable deposits:

reserve requirement = actual reserves / checkable deposits
reserve requirement = $40,000 / $240,000
reserve requirement = 0.1667 or 16.67%

However, we need to round up to the nearest 0.5% because legal reserve requirements are set in multiples of 0.5%. Therefore, the legal reserve requirement is 12.5%. Choice B is the correct answer.

If Actual Reserves in the Banking System Are $40,000, Excess