If a bank's desired reserve-deposit ratio is 0.33 and it has deposit liabilities of $100 million and reserves of $50 million, it:
A)has too few reserves and will reduce its lending.
B)has too many reserves and will increase its lending.
C)has the correct amount of reserves and outstanding loans.
D)should increase the amount of its reserves.

Question

Quizplus · Accepted Answer

The bank desires reserves of 0.33 × $100,000,000 = $33,000,000, however it holds reserves of $50,000,000. Thus, this bank has too many, or excess, reserves and will increase its lending.

If a Bank's Desired Reserve-Deposit Ratio Is 0