A bank's required reserves can be calculated by:
A) Dividing its excess reserves by its required reserves
B) Dividing its required reserves by its excess reserves
C) Multiplying its checkable-deposit liabilities by the reserve ratio
D) Multiplying its checkable-deposit liabilities by its excess reserves

Question

Quizplus · Accepted Answer

Required reserves are calculated by multiplying a bank's checkable-deposit liabilities by the required reserve ratio set by the Federal Reserve. Therefore, the correct option is to multiply the bank's checkable-deposit liabilities by the reserve ratio to calculate its required reserves. Options A and B are incorrect because they mix up excess reserves and required reserves. Option D is incorrect because it multiplies checkable-deposit liabilities by excess reserves, which is not a valid way to calculate required reserves.

A Bank's Required Reserves Can Be Calculated By