Question

A bank reports reserves of $500,000, physical capital of $200,000, loans of $1,000,000, deposits of $1,000,000, and owners' equity of $500,000. If the desired reserve ratio is 5 percent, the bank's desired reserves are ____________.

Answer 1

Answer:

$50,000

Explanation:

Data provided in the question:

Reserves reported by the bank = $500,000

Physical capital = $200,000

Loans reported = $1,000,000

Reported deposits =  $1,000,000

Owners' equity of $500,000

Desired reserve ratio = 5 percent

Now,

Desired reserve is calculated as:

Desired reserve = Deposits × Desired reserve ratio

on substituting the values, we get

Bank's Desired reserve = $1,000,000 × 5%

or

Bank's Desired reserve = $1,000,000 × 0.05

or

Bank's Desired reserve = $50,000