Use the balance sheet for the following questions.
Table 29-3

-Refer to Table 29-3. If the reserve requirement is 10 percent and then someone deposits $50 000 into the bank, what is the bank's reserve position?
A)It will have $57 000 in excess reserves.
B)It will have $52 000 in excess reserves.
C)It will need to raise reserves by $5000.
D)It will have excess reserves of $2000.

Question

Use the balance sheet for the following questions.
Table 29-3
 
-Refer to Table 29-3. If the reserve requirement is 10 percent and then someone deposits $50 000 into the bank, what is the bank's reserve position?
A)It will have $57 000 in excess reserves. 
B)It will have $52 000 in excess reserves. 
C)It will need to raise reserves by $5000. 
D)It will have excess reserves of $2000.

Quizplus · Accepted Answer

Reserve requirement is 10%, so the bank needs to hold 10% of deposits as reserves, which is $50,000 x 0.1 = $5,000.
After the deposit, the bank's total reserves would be $5,000 (original reserves) + $50,000 (new deposit) = $55,000.
The bank would be holding $55,000 - $5,000 = $50,000 in required reserves.
Therefore, excess reserves would be $55,000 - $50,000 = $5,000.
So, the bank's reserve position would be to have $5,000 in excess reserves, which is option B.

Use the Balance Sheet for the Following Questions