Assume that a bank holds legal reserves of $800, the required reserves are $400 and total deposit is $4, 000.If the government purchases bonds worth $200, excess reserves will increase by _____.

Question

Quizplus · Accepted Answer

The purchase of $200 of bonds by the government will increase the bank's reserves by $200. Since the required reserves are still $400, the excess reserves will increase by $200, resulting in a new level of excess reserves of $600. Therefore, the increase in excess reserves is $200.

Assume That a Bank Holds Legal Reserves of $800, the Required