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 vault cash.

Question

Quizplus · Accepted Answer

The required reserve ratio of ten percent means that First National Bank must hold ten percent of their total checkable deposits in reserves, which includes vault cash and deposits with the Federal Reserve. One million dollars represents ten percent of their total checkable deposits, which means their total checkable deposits are ten million dollars. Since they hold eight million dollars in deposits with the Federal Reserve, they have met their reserve requirements and only need vault cash to fulfill any additional cash demand. Therefore, the remaining two million dollars of the checkable deposits must be vault cash.

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