Assume the following: a 20 percent required reserve ratio, banks do not hold excess reserves, and the public does not hold cash. Also assume that First Bank just received a checking deposit of $500. What are the respective amounts of required reserves and excess reserves that First Bank initially holds from this transaction?

Question

Quizplus · Accepted Answer

RR = $100 because with a 20 percent required reserve ratio, 20% of $500 is $100. ER = $400 because after setting aside the required reserves, the remaining $400 can be loaned out.

Assume the Following: a 20 Percent Required Reserve Ratio, Banks