Question

If a bank that desires to hold no excess reserves and has just enough reserves to meet the required reserve ratio of 10 percent receives a deposit of $400 it has a a. $400 increase in excess reserves and no increase in required reserves. b. $400 increase in required reserves and no increase in excess reserves. c. $360 increase in excess reserves and a $40 increase in required reserves. d. $40 increase in excess reserves and a $360 increase in required reserves.

Answer 1

Answer:

 c. $360 increase in excess reserves and a $40 increase in required reserves

Explanation:

Required reserves is the amount of reserves that is required by the Central bank that banks should keep.

Required reserve = reserve ratio × deposit

= 0.1 × $400 = $40

Excess reserve is the amount of reserves kept in excess of the required reserves.

Excess reserve = Deposit - Required reserve = $400 - $40 = $360

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