Assume that the required reserve ratio is 20 percent. A business deposits a $50,000 check at Bank A; the check is drawn against Bank B. What happens to the reserves at Bank A and Bank B?

Question

Quizplus · Accepted Answer

When a $50,000 check drawn on Bank B is deposited into Bank A, Bank A's reserves increase by $50,000 because it now has an additional $50,000 in its vault or at the central bank. Conversely, Bank B's reserves decrease by $50,000 because it must transfer this amount to Bank A to cover the check. This transaction does not change the total reserves in the banking system but redistributes them between Bank A and Bank B.

Assume That the Required Reserve Ratio Is 20 Percent