Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 10 percent.If the Federal Reserve raises the required reserve ratio to 15 percent,then the bank will now have excess reserves of

Question

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With a 10% reserve requirement on $100 million in deposits, the bank needs to hold $10 million in reserves. If the requirement increases to 15%, the bank now needs to hold $15 million in reserves. Since the bank initially held exactly what was required (no excess reserves), increasing the requirement to 15% means the bank is short $5 million in reserves, hence -$5 million in excess reserves.

Suppose a Bank Has $100 Million in Checking Account Deposits