Assume that the Paris First National Bank currently has deposits of $20 million. If the current required reserve ratio is raised from 20 percent to 40 percent, then:
A) Paris First National Bank does not have to comply with the Federal Reserve mandate.
B) required reserves will decrease from $16 million to $12 million.
C) excess reserves will automatically increase by $20 million.
D) Paris First National Bank must close out 4 million in loans.
E) Paris First National Bank must increase its required reserves from $4 million to $8 million.

Question

Quizplus · Accepted Answer

If the required reserve ratio is raised from 20 percent to 40 percent, then the bank must increase its required reserves from $4 million to $8 million (20% of $20 million is $4 million, and 40% of $20 million is $8 million). Therefore, choice E is the correct answer.

Assume That the Paris First National Bank Currently Has Deposits