The following is information about a banking system:
New currency deposited in the system = $40 billion;desired reserve ratio = 20%;
excess reserves prior to the currency deposit = $0.
-Refer to the above information.The $40 billion deposit of currency into chequing accounts will create excess reserves of:

Question

Quizplus · Accepted Answer

The desired reserve ratio is 20%, which means that the bank must hold 20% of deposits as reserves.

Before the currency deposit, excess reserves were $0, meaning the bank was already holding the required 20% reserve ratio.

After the $40 billion deposit, the bank will need to hold:
20% of $40 billion = $8 billion.

Therefore, the excess reserves will be:
Excess reserves = Total reserves - Required reserves 
Excess reserves = $32 billion - $8 billion = $24 billion.

Therefore, the correct answer is B, $32 billion.

The Following Is Information About a Banking System