A commercial bank has excess reserves of $5,000 and a required reserve ratio of 20 percent. It makes a loan of $6,000 to a borrower. The borrower writes a check for $6,000 that is deposited in another commercial bank. After
The check clears, the ﬁrst bank will be short of reserves in the amount of

Question

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The first bank had $5,000 in excess reserves. When it loans out $6,000, it uses up all its excess reserves and needs an additional $1,000 to meet the 20% reserve requirement on the $6,000 loan.

A Commercial Bank Has Excess Reserves of $5,000 and a Required