In Wellville, the money supply is $80,000 and reserves are $12,800. Assuming that people hold only deposits and no currency, and that banks hold only required reserves, what is the required reserve ratio?
A) 12 percent
B) 14.5 percent
C) 16 percent
D) 29 percent

Question

Quizplus · Accepted Answer

The required reserve ratio can be calculated using the formula:
required reserve ratio = reserves / deposits

In this case, we know that reserves are $12,800 and that the money supply (which equals deposits in this scenario) is $80,000. Plugging these values into the formula, we get:

required reserve ratio = $12,800 / $80,000
required reserve ratio = 0.16 or 16%

Therefore, the correct answer is C, 16 percent.

In Wellville, the Money Supply Is $80,000 and Reserves Are