Question

Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and one million dollars in required reserves. Given this information, we can say First National Bank faces a required reserve ratio of ________ percent.
A) ten
B) twenty
C) eighty
D) ninety

Answer 1

Answer:

The correct answer is option A.

Explanation:

First National Bank holds two million dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and one million dollars in required reserves.

Total amount with the bank in deposits

= $8 million + $2 million

= $10 million

Amount required to be in reserves

= $ 1 million

Required reserve ratio

= $\frac{Required\ reserves}{total\ deposits} \times 100$

= $\frac{1}{10} \times 100$

= 10