If a bank has deposits worth $800, 000, total reserves worth $900, 000, and the reserve ratio of 0.20, what is the value of excess reserves?

Question

Quizplus · Accepted Answer

Excess Reserves = Total Reserves - Required Reserves.

We first calculate the Required Reserves as follows:

Required Reserves = Deposits x Reserve Ratio
Required Reserves = $800,000 x 0.20 = $160,000

Then we can calculate the Excess Reserves:

Excess Reserves = Total Reserves - Required Reserves
Excess Reserves = $900,000 - $160,000 = $740,000

Therefore, the value of excess reserves is $740,000, which corresponds to choice (D).

If a Bank Has Deposits Worth $800, 000, Total Reserves