Question

A bank has $770 million in checkable deposits. The bank has $85 million in reserves. The bank's required reserves are ________ and its excess reserves are ________. Group of answer choices $85 million; $0 $770 million; $85 million $685 million; $8.5 million $77 million; $8 million

Answer 1

Answer:

The correct answer is letter "D": $77 million; $8 million.

Explanation:

The U.S. Federal Reserve (Fed) establishes a minimum amount of money banks must have in front of unexpected demand. That minimum is called Bank Reserve. The current bank reserve set by the Fed is 10% of the bank's demand and checking deposits.

Excess reserves is the amount of money banks have on top of the bank reserve that cannot loan. As banks do not profit in interest with that amount of money, they do not tend to have much excess reserves.

In the case:

• Bank required reserve = $770,000,000 x 10%
• Bank required reserve = $77,000,000 = $77 million

• Excess reserve = $85,000,000 - $77,000,000
• Excess reserve = $8 million