Balance Sheet 15-B
A bank's assets consist of $1,000,000 in total reserves, $2,100,000 in loans, and a building worth $1,200,000. Its liabilities and capital consist of $3,000,000 in demand deposits and $1,300,000 in capital.
-Refer to Balance Sheet 15-B.If the required reserve ratio is 10 percent, what is the level of the bank's excess reserves? How much could it loan out as a result?

Question

Quizplus · Accepted Answer

The required reserve ratio is 10%, which means the bank must keep 10% of its demand deposits as reserves. The demand deposits are $3,000,000 so the required reserves are 10% of $3,000,000 = $300,000. The bank has total reserves of $1,000,000, so its excess reserves are $1,000,000 - $300,000 = $700,000. The bank can loan out its excess reserves, which is $700,000. Therefore, the correct answer is A.

Balance Sheet 15-B A Bank's Assets Consist of $1,000,000 in Total Reserves, $2,100,000