Assume that the reserve requirement is 25 percent and that the amount of checkable deposits in Federal Bank is $200. If the bank has loaned out $120, then the bank's excess reserves must equal

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The reserve requirement is 25%, which means that the bank is required to hold 25% of its checkable deposits as reserves. In this case, 25% of $200 is $50. If the bank has loaned out $120, then its total reserves must be $50 + $120 = $170. Since the bank has checkable deposits of $200, its excess reserves must be $200 - $170 = $30. Therefore, choice C is correct.

Assume That the Reserve Requirement Is 25 Percent and That