The Fed changes reserve requirements from 10 percent to 14 percent,thereby eliminating $750 million in excess reserves. The total change in deposits (with no drains)would be (rounded)

Question

Quizplus · Accepted Answer

To calculate the total change in deposits, we use the following formula: Change in deposits = (1/reserve requirement change) * excess reserves change. Plugging in the values, we get:
Change in deposits = (1/0.04) * 750 million = 18.75 billion
However, since the question asks for the total change in deposits with no drains, we need to subtract the initial excess reserves of $750 million, giving us a total change in deposits of $18 billion. Rounded to the nearest billion, the answer is $5.357 billion (option C).

The Fed Changes Reserve Requirements from 10 Percent to 14