A bank receives a demand deposit of $2000.The bank loans out $1200 of this deposit and increases its excess reserves by $600.What is the desired reserve ratio?

Question

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The desired reserve ratio is 10 percent because the bank loans out $1200 of the $2000 deposit, which leaves $800 in reserves. The bank then increases its excess reserves by $600, which brings the total reserves to $1400. The desired reserve ratio is then $1400/$2000 = 10%.

A Bank Receives a Demand Deposit of $2000