A bank has excess reserves of $10000 and demand deposit liabilities of $100,000 when the desired reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, the bank's excess reserves will be ________.

Question

Quizplus · Accepted Answer

Initial reserves = 0.2($100,000) = $20,000

Excess reserves = $10,000

If the reserve ratio is raised to 25%, then desired reserves will be = 0.25($100,000) = $25,000

So excess reserves will become = $25,000 - $20,000 = $5,000

A Bank Has Excess Reserves of $10000 and Demand Deposit