Question

Suppose that Second Republic Bank currently has $50,000 in demand deposits and $32,500 in outstanding loans. The Federal Reserve has set the reserve requirement at 10%.

Second Republic
Reserves	Required Reserves	Excess Reserves
(Dollars)	(Dollars)	(Dollars)

Answer 1

Demand deposits = $ 50,000

Outstanding loans = $ 32,500

Reserve = Demand deposit - loans

Reserve = 50,000 - 32,500

= $ 17500

Required reserve is the percentage of demand deposits that the bank needs to hold as reserves , here it is 10% of $ 50,000.

Required reserves = 0.10 (50,000) = $ 5000

Excess reserves = Reserve - Required reserves

= $ (17500 - 5000)

= $ 12,500

	SECOND REPUBLIC
Reserves (Dollars)	Required reserves (Dollars)	Excess reserves (Dollars)
17,500	5000	12,500