Refer to the table above. If a bank has checkable deposits of $45 million and reserves of $2 million, then its excess reserves are:
A) $0.35 million
B) $0.65 million
C) $1.35 million
D) $1.65 million

Question

Refer to the table above. If a bank has checkable deposits of $45 million and reserves of $2 million, then its excess reserves are:
A) $0.35 million 
B) $0.65 million 
C) $1.35 million 
D) $1.65 million

Quizplus · Accepted Answer

Excess reserves are the reserves held by a bank in excess of the required reserve ratio. The required reserve ratio is the percentage of checkable deposits that banks are required to keep on reserve by the Federal Reserve. Using the formula, excess reserves = reserves - required reserves, we can find that the required reserves for this bank are $1.8 million, since the required reserve ratio is 4%. Therefore, excess reserves = $2 million - $1.8 million = $0.2 million.

Refer to the Table Above