Question

19. Required and excess reserves Suppose that Second Republic Bank currently has $200,000 in demand deposits and $130,000 in outstanding loans. The Federal Reserve has set the reserve requirement at 10%. Second Republic Reserves Required Reserves Excess Reserves (Dollars) (Dollars) (Dollars)

Answer 1

Answer:

Reserves = $70,000

required reserves = $20,000

Excess Reserves = $50,000

Explanation:

given data

demand deposits = $200,000

outstanding loans = $130,000

reserve requirement = 10%

to find out

Second Republic Reserves and Required Reserves and Excess Reserves

solution

we consider here 3 balance sheet

so here we get reserve that is express by demand deposit that is

demand deposit = Reserves + Outstanding Loan   .................1

$200,000  = Reserves + $130,000

Reserves = $70,000

and

required reserves will be here as

required reserves = 10% of demand deposits    ................2

required reserves = 10% of $200,000

required reserves = $20,000

and

Excess Reserves will be here as

Excess Reserves = Total Reserves - Required Reserves   ............3

Excess Reserves = $70,000 - $20,000

Excess Reserves = $50,000