Table 29-4.
The First Bank of Wahooton

-Refer to Table 29-4.If the bank faces a reserve requirement of 20 percent,then it
A) has $10,000 of excess reserves.
B) needs $10,000 more reserves to meet its reserve requirements.
C) needs $5,000 more reserves to meet its reserve requirements.
D) just meets its reserve requirement.

Question

Table 29-4.
The First Bank of Wahooton
 
-Refer to Table 29-4.If the bank faces a reserve requirement of 20 percent,then it
A) has $10,000 of excess reserves. 
B) needs $10,000 more reserves to meet its reserve requirements. 
C) needs $5,000 more reserves to meet its reserve requirements. 
D) just meets its reserve requirement.

Quizplus · Accepted Answer

To calculate the required reserves, we need to multiply the deposits by the reserve requirement percentage:
$50,000 x 0.20 = $10,000 required reserves
The table shows that the bank currently has $5,000 in required reserves. Therefore, it needs an additional $5,000 in reserves to meet the requirement. This means that it does not have excess reserves (A) and it needs more than $10,000 (B). It also does not just meet its reserve requirement (D). Therefore, the correct answer is C.

Table 29-4. The First Bank of Wahooton