$$\begin{array} { | l | c | }
\hline { \text { Type of Deposit } } & \text { Reserve Requirement } \
\hline \text { Checkable Deposits } & \
\hline \$ 7.8 \text { - 48.3 Million } & 3 \% \
\hline \text { Over \$48.3 Million } & 10 \
\hline \text { Noncheckable personal savings and time deposits } & 0 \
\hline
\end{array}$$ Refer to the accompanying table. If a bank has checkable deposits of $45 million and reserves of $2 million, then its excess reserves are
A) $0.35 million.
B) $0.65 million.
C) $1.35 million.
D) $1.65 million.

Question

$$\begin{array} { | l | c | } 
\hline { \text { Type of Deposit } } & \text { Reserve Requirement } \
\hline \text { Checkable Deposits } & \
\hline \$ 7.8 \text { - 48.3 Million } & 3 \% \
\hline \text { Over \$48.3 Million } & 10 \
\hline \text { Noncheckable personal savings and time deposits } & 0 \
\hline
\end{array}$$ Refer to the accompanying table. If a bank has checkable deposits of $45 million and reserves of $2 million, then its excess reserves are
A) $0.35 million.
B) $0.65 million.
C) $1.35 million.
D) $1.65 million.

Quizplus · Accepted Answer

For checkable deposits up to $7.8 million, the required reserves are $234,000 ($7.8 million x 0.03). For checkable deposits between $7.8 million and $48.3 million, the required reserves are 3% of the amount over $7.8 million. Therefore, for the next $37.5 million ($45 million - $7.8 million), the required reserves are $1,125,000 ($37.5 million x 0.03). For the remaining checkable deposits over $48.3 million, the required reserves are 10%. Since the bank has only $45 million in checkable deposits, this does not apply.

So, total required reserves for this bank is $1,359,000 ($234,000 + $1,125,000). Excess reserves can be calculated by subtracting required reserves from actual reserves: 
Excess reserves = Actual reserves - Required reserves 
= $2 million - $1,359,000 
= $641,000 or $0.641 million. 
Therefore, the answer is B as it is the closest option to $0.641 million.

Refer to the Accompanying Table