Question

A bank has $10,000 in excess reserves and the required reserve ratio is 20 percent. This means the bank could have __________ in checkable deposit liabilities and __________ in total reserves.

Answer 1

Answer: $100,000; $30,000

Explanation:

The reserve rate is the amount of money that is made compulsory by the central bank of a country to the commercial banks to keep with them. It is a way of controlling the money in circulation.

A bank has $10,000 in excess reserves and the required reserve ratio is 20 percent. This means the bank could have $100,000 in checkable deposit liabilities and $30,000 in total reserves.

Since deposit is $100,000 and reserved rate is 20%, this will give an amount of: 20% × $100,000 = $20,000. Adding the $10,000 excess reserve will make $30,000 to which is the total reserve