Question

If the required reserve ratio is 4 percent, then $100 of reserves can support up to $2,500 of checkable deposits.

Answer 1

Ans) Required reserve ratio is the percent of bank deposits that must be kept as reserves.

Mathematically,

Reserve ratio = Reserves ÷ Total deposits  

In the questions we are given ,

Reserve ratio = 4% = 0.04

Reserves = $100

Substituting the values in the reserve ratio gives,

0.04 = 100 ÷ Deposits

Deposits = 100 ÷ 0.04

Deposits = $2500

Therefore, if reserves amount equals $100, then at reserve ratio of 4%, total checkable depoits increase to $2500.