Suppose that from a new checkable deposit,First National Bank holds eight million dollars on deposit with the Federal Reserve,one million dollars in required reserves,and faces a required reserve ratio of ten percent. Given this information,we can say First National Bank has ________ million dollars in excess reserves.

Question

Quizplus · Accepted Answer

The required reserve is 10% of the new checkable deposit, which is one million dollars. Since the bank holds eight million dollars on deposit with the Federal Reserve, the excess reserves are eight million minus the required one million, which equals seven million dollars. However, the question seems to imply a total of nine million dollars in reserves (one million required plus eight million held), so the excess reserves are nine million minus one million, equaling eight million dollars.

Suppose That from a New Checkable Deposit,First National Bank Holds