Question

Assume that a bank holds 3 million dollars in vault cash, 9 million dollars on deposit with the Federal Reserve, and 2 million dollars in required reserves. What is the level of excess reserves?

Answer 1

Answer:

The amount or the level of excess reserves is $11 million

Explanation:

The formula to compute the excess reserve level is as:

Excess reserve = Deposit with Federal Reserve (Legal Reserve) + Required reserve

where

Deposit with Federal Reserve is 9 million dollars

Required reserve is 2 million dollars

Putting the Values above:

Excess Reserve = $9 million + $2 million

= $11 million