Question

Suppose that Serendipity Bank has excess cash reserves of $8,000 and demand deposits of $150,000.

If the desired reserve ratio is 10 percent, what is the size of the bank's actual cash reserves?

$

Part 2:

The following is information about a banking system: new currency deposited in the system = $40 billion; desired reserve ratio = 20%; excess reserves prior to the new currency deposit = $0.

Refer to the above information. The total demand deposit after the expansion of the money supply through loans is:

$40 billion.

$128 billion.

$160 billion.

$200 billion.

Answer 1

Solution

The first step is to calculate the required reserves for the bank. This equals the product of the required reserve ratio (decimal form) and checkable deposits. Required reserves = 0.20 × $150,000 = $30,000. The second step is to calculate actual reserves. This is the sum of required reserves and excess reserves. Actual reserves = required reserves + excess reserves = $30,000 + $8,000 = $38,000.

$38,000.

Refer to the above information. The total demand deposit after the expansion of the money supply through loans is:

$200 billion.