The Banks of the Mississippi has excess reserves of $20,000,desired reserves of $80,000 and the desired reserve ratio is 5 percent.What is the total amount of deposits in this bank?

Question

Quizplus · Accepted Answer

The formula for calculating the total amount of deposits in a bank is:
Total Deposits = Excess Reserves / Reserve Ratio

In this case, the excess reserves are $20,000 and the reserve ratio is 5 percent or 0.05. Plugging these values into the above formula, we get:

Total Deposits = $20,000 / 0.05
Total Deposits = $400,000

However, the bank desires reserves of $80,000, which means that this amount should also be deducted from the total deposits:

Total Deposits = $400,000 - $80,000
Total Deposits = $320,000

Therefore, the total amount of deposits in this bank is $320,000. Option C is the correct answer.

The Banks of the Mississippi Has Excess Reserves of $20,000,desired