Suppose the reserve requirement for transaction deposits is 10% and it is 5% for nontransaction deposits.What is the total reserve requirement for a bank with total deposits equal to $800 million,if $600 million of these deposits are classified as transaction deposits?
A) $80 million
B) $60 million
C) $70 million
D) $100 million
E) None of the above.

Question

Quizplus · Accepted Answer

The reserve requirement for transaction deposits is 10%, so the total reserve requirement for the $600 million in transaction deposits is:

10% x $600 million = $60 million

The reserve requirement for nontransaction deposits is 5%, so the total reserve requirement for the $200 million in nontransaction deposits is:

5% x $200 million = $10 million

Therefore, the total reserve requirement for the bank is:

$60 million + $10 million = $70 million.

Hence, the correct answer is C) $70 million.

Suppose the Reserve Requirement for Transaction Deposits Is 10% and It