Question

Third National Bank has reserves of $10,000 and checkable deposits of $100,000. The reserve ratio is 10 percent. Households deposit $20,000 in currency into the bank and that currency is added to reserves. Instructions: Enter your answer as a whole number. What level of excess reserves does the bank now have?

Answer 1

Total reserve before households deposit = 10,000

Now household deposits 20,000 and bank added this also to its reserves.

Hence Bank Total Reserves = 10,000 + 20,000 = 30,000

Total Deposits before household deposits = 100,000 and Now Household deposited 20,000

Hence Total deposits = 100,000 + 20,000 = 120,000

Required Reserves = Required reserve ratio*Total deposits = (10/100)*120,000 = 12,000

Required reserves + Excess reserves = Total Reserves

=> Excess reserves = Total reserves - required reserves

= 30,000 - 12,000

= 18,000

Hence,  level of excess reserves the bank now have is $18,000