Table 12.2
$\begin{array}{c}
\text { Balance Sheet }\
\quad\quad\quad\text { Assets } \quad\quad\quad\quad\quad\quad\quad\quad \text { Liabilities }\
\begin{array}{|c|c|c|c|}
\hline\text { Cash } & \$ 5,000 & \begin{array}{c}
\text { Demand } \
\text { Deposits }
\end{array} & \$ 20,000 \
\hline \text { Loans } & 15,000 & & \
\hline \text { Total Assets } & \$ 20,000 & \text { Total Liabilities } & \$ 20,000 \
\hline
\end{array}\end{array}$

-Refer to Table 12.2. If excess reserves equal $2,000, what must the reserve requirement be equal to?

Question

Table 12.2
 $\begin{array}{c}
\text {  Balance Sheet  }\
\quad\quad\quad\text { Assets } \quad\quad\quad\quad\quad\quad\quad\quad \text { Liabilities }\
\begin{array}{|c|c|c|c|}
\hline\text { Cash } & \$ 5,000 & \begin{array}{c}
\text { Demand } \
\text { Deposits }
\end{array} & \$ 20,000 \
\hline \text { Loans } & 15,000 & & \
\hline \text { Total Assets } & \$ 20,000 & \text { Total Liabilities } & \$ 20,000 \
\hline
\end{array}\end{array}$

-Refer to Table 12.2. If excess reserves equal $2,000, what must the reserve requirement be equal to?

Quizplus · Accepted Answer

The reserve requirement is the percentage of demand deposits that banks are required to hold in reserve. Excess reserves represent the amount of reserves held above the required reserve amount. In this case, excess reserves are $2,000 and total demand deposits are $20,000. Therefore, the required reserves must be:

Required reserves = Total Demand Deposits - Excess Reserves
Required reserves = $20,000 - $2,000
Required reserves = $18,000

The reserve requirement as a percentage of demand deposits is:

Reserve Requirement = Required Reserves / Demand Deposits
Reserve Requirement = $18,000 / $20,000
Reserve Requirement = 0.9 or 90%

To find the reserve requirement as a decimal, we can subtract the excess reserves from the total assets and then divide by the demand deposits:

Reserve Requirement = (Total Assets - Excess Reserves) / Demand Deposits
Reserve Requirement = ($20,000 - $2,000) / $20,000
Reserve Requirement = $18,000 / $20,000
Reserve Requirement = 0.9 or 90%

So, the reserve requirement must be 15 percent (or 0.15 as a decimal) in order to have excess reserves of $2,000 with total demand deposits of $20,000.

Table 122 -Refer to Table 12