Question

Assume that the commercial banking system has checkable deposits of $10 billion and excess reserves of $1 billion at a time when the reserve requirement is 20 percent. If the reserve requirement is now raised to 30 percent, the banking system then has

Answer 1

Answer:

If the reserve rate is raised to 30%, the banking system will be able to comply with it without having to make any more reserves, since their total reserves are currently $3 billion.

Explanation:

If the banking system currently has $10 billion in deposits:

• a reserve ration of 20% = $2 billion in reserves
• excess reserves = $1 billion

total reserves held by banks = $2 billion + $1 billion = $3 billion