Question

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

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.

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.

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