Bigbux Bank holds $300 million in deposits from their customers. If the Fed sets the reserve requirement at 12 percent, Springfield must hold $24 million in cash at the bank or in non-interest-bearing deposits at the local Federal Reserve district bank.

Question

Quizplus · Accepted Answer

The reserve requirement specifies the amount of reserves (vault cash or deposits with the Federal Reserve district bank) a bank must hold as a percentage of its deposits. Thus, if the reserve requirement is 12 percent, banks must hold reserves equal to 12 percent of deposits. In this case, 12 percent of $300 million is $36 million.

Bigbux Bank Holds $300 Million in Deposits from Their Customers