Question

in the past, the federal reserve (fed) mandated that member commercial banks must hold a certain fraction of their checkable deposits in the form of bank deposits at the fed and/or vault cash because the sum of these two accounts equals reserves. the fraction of checkable deposits that banks must hold in reserve form is called the required reserve ratio (r). suppose no excess reserves were in the banking system and the required reserve ratio(r) was 10%. the fedbought a government bond worth $250,000 from raphael, a client of first main street bank. raphael deposited the money into his checking account at first main street bank. given the required reserve ratio (r), first main street bank was required to hold as required reserves and could use to make loans.

Answer 1

$25000 is the amount of money that should be in the reserves of the banks.

Given, the federal reserve (fed) mandated that member commercial banks must hold a certain fraction of their checkable deposits in the form of bank deposits at the fed and/or vault cash because the sum of these two accounts equals reserves. the fraction of checkable deposits that banks must hold in reserve form is called the required reserve ratio (r).

the required reserve ratio(r) was 10%. the fed bought a government bond worth $250,000 from Raphael, a client of first main street bank.

now the amount be, 250000 and the required reserve ratio be, 10%

so the amount of money that should be in the reserves be

10% of the amount

10% of 250000

= 25000

So, $25000 is the amount of money that should be in the reserves of the banks.

Hence, $25000 is the amount of money that should be in the reserves of the banks.

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