Assume that the Paris First National Bank currently has deposits of $20 million. If the current required reserve ratio is raised from 20 percent to 40 percent, then:

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If the required reserve ratio is raised from 20 percent to 40 percent, it means that banks need to hold a larger percentage of their deposits as required reserves. Since the bank currently has $20 million in deposits, under the new reserve ratio, it would need to hold $8 million in required reserves (40% x $20 million). This means that Paris First National Bank would need to increase its required reserves from $4 million to $8 million, which is a difference of $4 million.

Assume That the Paris First National Bank Currently Has Deposits