A commercial bank has no excess reserves until a depositor places $2,000 in cash in the bank. The reserve ratio is 10%. The bank then lends $1,500 to a borrower. As a consequence of these transactions the bank's excess reserves are:

Question

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The bank receives $2,000, with a 10% reserve ratio, it must keep $200 as required reserves. After lending $1,500, the bank has $300 in excess reserves ($2,000 - $200 - $1,500 = $300).

A Commercial Bank Has No Excess Reserves Until a Depositor