Assume that the required reserve ratio is 5 percent. If a commercial bank has $2 million cash in its vault, $1 million in government securities, $3 million on deposit at the Fed, and $60 million in checkable deposits, then its excess
Reserves equal
A) $0 million.
B) $2 million.
C) $5 million.
D) $6 million.

Question

Quizplus · Accepted Answer

The required reserves are 5% of $60 million in checkable deposits, which is $3 million. The bank has $2 million in cash and $3 million on deposit at the Fed, totaling $5 million in reserves. Excess reserves are total reserves minus required reserves, which is $5 million - $3 million = $2 million.

Assume That the Required Reserve Ratio Is 5 Percent