If Bulge Bank has a desired reserve ratio of 10 percent,loans of $25,000,deposits of $100,000,vault cash of $10,000,and reserves at the Fed of $65,000,then the bank
A)has no remaining capacity to make loans.
B)does not have enough reserves to meet its requirement.
C)has excess reserves of $65,000.
D)has excess reserves of $55,000.
E)has excess reserves of $75,000.

Question

Quizplus · Accepted Answer

The bank's required reserves are $10,000 (10% of $100,000). The bank has $65,000 in reserves at the Fed and $10,000 in vault cash, for a total of $75,000 in reserves. This is $65,000 more than the required reserves, so the bank has excess reserves of $65,000.

If Bulge Bank Has a Desired Reserve Ratio of 10