When Grayce deposits $4,000 cash in her checkable deposit at the Beach Bank and the Beach Bank's excess reserves increase by $3,600,the desired reserve ratio is
A)5 percent.
B)10 percent.
C)15 percent.
D)90 percent.
E)$400.

Question

Quizplus · Accepted Answer

The desired reserve ratio can be calculated using the formula:

Desired reserve ratio = required reserves / checkable deposits

We know that Grayce deposited $4,000 in cash, so her checkable deposit is also $4,000. We also know that the excess reserves of the Beach Bank increased by $3,600, which means that the required reserves increased by the same amount. Therefore:

Required reserves = $3,600

Desired reserve ratio = $3,600 / $4,000
Desired reserve ratio = 0.9 or 90%

However, the answer choices do not include 90%. The only choice that is close to this is 10%, which would be the answer if we interpreted the question as asking for the reserve requirement ratio (which is the inverse of the desired reserve ratio):

Reserve requirement ratio = 1 - desired reserve ratio
Reserve requirement ratio = 1 - 0.9
Reserve requirement ratio = 0.1 or 10%

When Grayce Deposits $4,000 Cash in Her Checkable Deposit at the Beach