In the nation of Feutschland,the money supply is $80,000 and reserves are $18,000.Assuming that people hold only deposits and no currency,and that banks hold no excess reserves,then the reserve requirement is

Question

Quizplus · Accepted Answer

The reserve ratio is the fraction of deposits that banks are required to hold in reserves. We know that the money supply is equal to deposits, so we can calculate the reserve ratio as follows:

Reserves = Required reserves + Excess reserves
Reserves = Required reserves (since banks hold no excess reserves)
$18,000 = reserve ratio × $80,000
reserve ratio = $18,000/$80,000 = 0.225
Therefore, the reserve requirement is 22.5 percent, which is answer B.

In the Nation of Feutschland,the Money Supply Is $80,000 and Reserves