Question

# 1. Suppose a bank has checkable deposit liabilities of \$100,000 and reserves of \$42,000. If its...

1.

Suppose a bank has checkable deposit liabilities of \$100,000 and reserves of \$42,000. If its excess reserves is \$17,000, what is the reserve ratio?

0.1

0.15

0.20

0.25

2.

The maximum amount of money a bank can lend

must be less than its required reserves.

is the difference between its reserves and its required reserves.

is the reserve ratio times its checkable deposit liabilities.

declines when the Fed decreases the reserve ratio.

1)

It is given that Deposits = 100,000, Total Reserves = 42000 and Excess reserves = 17000

Formula :

Total Reserves = Required Reserves + Excess Reserves

=> 42000 = required reserves + 17000

=> Required Reserves = 25000

Thus, Required Reserves ratio = (Required Reserves/Deposit) = 25,000/100,000 = 0.25

Hence, the correct answer is (d) 0.25

2)

When a commercial bank receives deposits then they must have to keep proportion of that amount as required reserves. After keeping required amount as reserves, Then they can lend the remaining amount or can keep as reserves.

So, Maximum amount that they can lend is the remaining reserves(i.e. other than required reserves)

Hence, the correct answer is (b) is the difference between its reserves and its required reserves.

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