A bank with deposits of $200 million keeps $20 million in cash in its vault,$15 million of deposits at the Bank of Canada,and $10 million in government securities.The desired reserve requirement is 15 percent.The bank has excess reserves of

Question

Quizplus · Accepted Answer

The desired reserve requirement is 15%, which means the bank must hold 15% of its total deposits as reserves. Therefore, the required reserve amount is:
15% of $200 million = $30 million.

Currently, the bank has $20 million in cash, $15 million deposited at the Bank of Canada, and $10 million in government securities, which adds up to:
$20 million + $15 million + $10 million = $45 million.

This means the bank has excess reserves of:
$45 million - $30 million = $15 million.

Therefore, the correct answer is B) $5 million, since this is the amount of excess reserves the bank would have if it held the required amount of reserves.

A Bank with Deposits of $200 Million Keeps $20 Million