The banks on Sunny Island have deposits of $4 million, reserves of $600,000, and loans of $2.4 million. The desired reserve ratio is 10 percent. The banks have ________ of desired reserves and ________ of excess reserves.

Question

Quizplus · Accepted Answer

The desired reserve ratio is 10%, which means the banks should hold $400,000 (10% of deposits). However, they currently have $600,000 in reserves, which means they have excess reserves of $200,000. Therefore, the answer is C (400,000 of desired reserves and 200,000 of excess reserves).

The Banks on Sunny Island Have Deposits of $4 Million