Suppose that the Bank of Bananas has excess reserves of $10,000,000 and checkable deposits $200,000,000.If the bank has a reserve requirement of 25%,what is the bank's total amount of required reserves?

Question

Quizplus · Accepted Answer

The reserve requirement is 25% of checkable deposits, which is $50,000,000 ($200,000,000 x 0.25). Therefore, the Bank of Bananas needs to hold $50,000,000 in required reserves. They currently have $10,000,000 in excess reserves, so they can loan out the remaining $40,000,000 to earn interest.

Suppose That the Bank of Bananas Has Excess Reserves of $10,000,000