Assume the commercial banking system has checkable deposits of $20 billion and excess reserves of $2 billion when the reserve ratio is 25 percent. If the reserve ratio is then lowered to 20 percent, we can conclude that the:

Question

Quizplus · Accepted Answer

With a reserve ratio of 25%, required reserves are $5 billion (25% of $20 billion), leaving $2 billion as excess reserves. Lowering the reserve ratio to 20% reduces required reserves to $4 billion, increasing excess reserves to $3 billion.

Assume the Commercial Banking System Has Checkable Deposits of $20