You receive a $1,000 check from your parents for your birthday,and you deposit this in a bank that faces a 10% reserve ratio.What is the consequence if the bank then deposits your check at the Federal Reserve?

Question

Quizplus · Accepted Answer

When you deposit $1,000 into the bank, the bank is required to hold reserves equal to 10% of the deposit, which is $100. This leaves $900 as excess reserves. 
If the bank then deposits the $1,000 at the Federal Reserve, their reserves do not change, but their excess reserves decrease by $1,000. Therefore, the new excess reserves at the bank will be $900 - $1,000 = -$100, and the required reserves will still be $100. Thus, excess reserves decrease by $1,000 and required reserves increase by $100.

You Receive a $1,000 Check from Your Parents for Your