The Manitoba Bank has $20,000 in excess reserves and the target reserve ratio is 15 percent.Which of the following statements is valid?

Question

Quizplus · Accepted Answer

The bank's excess reserves are the amount of reserves it holds above the required reserves. If the bank has $20,000 in excess reserves and the target reserve ratio is 15%, we can calculate the total amount of demand deposits by dividing the excess reserves by the reserve ratio. The actual reserves are the sum of required reserves and excess reserves. For option B, with $200,000 in demand deposits and a 15% reserve ratio, the required reserves would be $30,000 ($200,000 * 15%). Adding the excess reserves of $20,000 to the required reserves gives us $50,000 in actual reserves, which matches the information in option B.

The Manitoba Bank Has $20,000 in Excess Reserves and the Target