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The reserve requirement is 20%.Leroy receives $1000 as a graduation present and deposits the money in his chequing account.The bank does NOT want to hold excess reserves.
-(Scenario: Money Creation)Refer to Scenario: Money Creation.The bank does NOT want to hold excess reserves.Immediately after the deposit,reserves _____ and demand deposits _____ by $1000.

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The bank is required to hold 20% of deposits as reserves. Since the bank does not want to hold excess reserves, it will lend out the remaining 80% of the deposit. This will increase demand deposits by $1000 and reserves by $200.

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