Suppose you found $1000 hidden in your mattress and deposited it in a demand deposit account at your bank.If the desired reserve ratio was 20 percent,how much would the deposit directly create in excess reserves?

Question

Quizplus · Accepted Answer

If the desired reserve ratio is 20 percent, then the bank must hold 20 percent of the deposit as required reserves and can loan out the remaining 80 percent.
Required reserves on a deposit of $1000 at a 20 percent reserve ratio is:
$1000 x 0.20 = $200
The remainder of the deposit can be used to create excess reserves:
$1000 - $200 = $800
Therefore, the deposit directly creates $800 in excess reserves.

Suppose You Found $1000 Hidden in Your Mattress and Deposited