Suppose the banking system currently has $300 billion in reserves,that the reserve requirement is 10%,and that $3 billion of the reserves are excess reserves that will not be lent out.What is the value of deposits?
A)$3,300 billion
B)$2,970 billion
C)$2,700 billion
D)$2,673 billion

Question

Quizplus · Accepted Answer

Reserve Requirement = 10%
Excess Reserves = $3 billion

Total Reserves = $300 billion
Excess Reserves = $3 billion

Required Reserves = Deposits x Reserve Requirement
$300 billion = Deposits x 10%
Deposits = $300 billion / 10%
Deposits = $3,000 billion

However, $3 billion of the reserves are excess reserves that will not be lent out. Therefore, we need to subtract this amount from the total deposits.

Deposits = $3,000 billion - $3 billion
Deposits = $2,970 billion

Therefore, the value of deposits is $2,970 billion. Answer:B

Suppose the Banking System Currently Has $300 Billion in Reserves,that