The commercial banking system has excess reserves of $200,000. Then new loans of $800,000 are subsequently made, and the system ends up just meeting its reserve requirements. The required reserve ratio must be:

Question

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The required reserve ratio is 25 percent because the new loans of $800,000 would require $200,000 in reserves (25% of $800,000), which is exactly the amount of excess reserves the system had.

The Commercial Banking System Has Excess Reserves of $200,000