Suppose that from a new checkable deposit,First National Bank holds eight million dollars on deposit with the Federal Reserve,nine million dollars in excess 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

According to the required reserve ratio of ten percent, the bank would need to hold ten percent of its deposits as reserves. Since the bank holds eight million dollars on deposit with the Federal Reserve, which counts towards its required reserves, we can calculate its total deposits as follows:

Required reserves = Total deposits x Required reserve ratio
8 million = Total deposits x 0.10
Total deposits = 80 million

Therefore, the bank's excess reserves of nine million dollars are the amount of reserves held above the required amount. The remaining reserves must be held as vault cash. Therefore, First National Bank has two million dollars in vault cash.

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