Assume that a firm deposits in its bank a cheque for $1,000 drawn on another bank.If the target reserve ratio is 20 percent and excess reserves are initially zero,how much excess reserves does the bank now have?

Question

Quizplus · Accepted Answer

When the firm deposits the $1,000 check, the bank must keep 20% ($200) as reserves according to the target reserve ratio. The remaining $800 can be considered excess reserves since it is more than the required reserve amount.

Assume That a Firm Deposits in Its Bank a Cheque