Suppose that the Lions Bank has excess reserves of $10,000 and demand deposits of $100 000.If the target reserve ratio is 10 percent what is the size of the bank's actual reserves?

Question

Quizplus · Accepted Answer

The bank's actual reserves are the sum of its required reserves and its excess reserves. The required reserves are 10% of demand deposits, which is $10,000 (10% of $100,000). Since the bank has excess reserves of $10,000, the total actual reserves are $20,000 ($10,000 required reserves + $10,000 excess reserves).

Suppose That the Lions Bank Has Excess Reserves of $10,000