The following balance sheet is for the First National Bank.Assume the desired reserve ratio is 15 percent.

-Refer to the above data.If a cheque for $14,000 is drawn and cleared against this bank,its reserves and demand deposits will be,respectively:

Question

The following balance sheet is for the First National Bank.Assume the desired reserve ratio is 15 percent.
 
-Refer to the above data.If a cheque for $14,000 is drawn and cleared against this bank,its reserves and demand deposits will be,respectively:

Quizplus · Accepted Answer

The desired reserve ratio is 15%, which means the bank must keep 15% of its total deposits as reserves. 
Current reserves: $42,000 ($280,000 x 0.15)
Current demand deposits: $280,000

When a cheque for $14,000 is drawn and cleared, the bank must reduce its demand deposits by that amount and keep the required reserve. 
New demand deposits: $266,000 ($280,000 - $14,000)
New reserves: $56,400 ($266,000 x 0.15)

Therefore, the bank's new reserves will be $56,400 and its new demand deposits will be $266,000. The answer is D. ($36,000 and $106,000 are incorrect because they only consider the reduction in demand deposits and not the required reserve.)

The Following Balance Sheet Is for the First National Bank