Riley deposits $4,000 cash in her checkable deposit at Fershur Bank.If the desired reserve ratio is 5 percent,Fershur Bank's

Question

Quizplus · Accepted Answer

The desired reserve ratio is the percentage of deposits that a bank must hold as reserves. In this case, the desired reserve ratio is 5 percent, so Fershur Bank must hold 5 percent of Riley's $4,000 deposit as reserves. This means that Fershur Bank's desired reserves increase by $200 (5% of $4,000).

However, the bank already has $3,800 in excess reserves (the amount of reserves held above the required reserve ratio), so the excess reserves increase by $4,000 (the full amount of Riley's deposit). Therefore, the bank's assets increase by $4,000 (the additional cash on deposit) and its liabilities (in the form of checkable deposits) also increase by $4,000.

Riley Deposits $4,000 Cash in Her Checkable Deposit at Fershur