Question

Suppose that Best National Bank currently has $200,000 in demand deposits and $130,000 in outstanding loans. The Federal Reserve has set the reserve requirement at 10%. Fill in (dollars):

Best National
Reserves (Dollars) (Dollars)?
Required Reserves (Dollars)?
Excess Reserves (Dollars)?

Answer 1

Answer:

Reserve = $70,000

Required reserves = $20,000

Excess reserves = $50,000

Explanation:

Given that

Demand deposits = $200,000

Outstanding loans = $130,000

Reserve requirement = 10%

Reserve = Demand deposits - Outstanding loans

= $200,000 - $130,000

=$70,000

Required reserves = Reserve requirement × Demand deposits

= 10% × $200,000

= $20,000

Excess reserves = Reserve - Required reserves

= $70,000 - $20,000

=$50,000