The table below shows the balance sheet of Eubank which holds no excess reserves. Assume that the required reserve ratio is 10%. If a student deposits $10,000 in cash into his checkable deposit account, Eubank will have _____ in excess reserves?

Question

Quizplus · Accepted Answer

Before the deposit:

Required reserves = 0.1 x $100,000 = $10,000

Actual reserves = $20,000

Excess reserves = Actual reserves - Required reserves = $20,000 - $10,000 = $10,000

After the deposit:

Required reserves = 0.1 x ($100,000 + $10,000) = $11,000

Actual reserves = $20,000 + $10,000 = $30,000

Excess reserves = Actual reserves - Required reserves = $30,000 - $11,000 = $19,000

Therefore, Eubank will have $19,000 in excess reserves. The correct answer is C, $9,000, since the deposit itself would add $10,000 to the actual reserves, but the required reserves would also increase by $1,000 (10% of the new deposit), leaving $9,000 as excess reserves.

The Table Below Shows the Balance Sheet of Eubank Which