The manager of the bank where you work tells you that your bank has $5 million in excess reserves. She also tells you that the bank has $300 million in deposits and $255 million dollars in loans. Given this information you find that the reserve requirement must be
A)50/255.
B)40/255.
C)50/300.
D)40/300.

Question

Quizplus · Accepted Answer

The reserve requirement is calculated as the difference between deposits and loans, which is the reserves, divided by the total deposits. Here, the reserves are $300 million - $255 million = $45 million. The reserve requirement is $45 million / $300 million = 0.15 or 15%, which matches option D when simplified to 40/300.

The Manager of the Bank Where You Work Tells You