Question

A depositor places $10,000 in cash in a commercial bank, where the required reserve ratio is 10 percent. The bank sends the $10,000 to its Reserve. As a result, the actual reserves (R), required reserves (RR) , and excess reserves (ER) of the bank have been increased by ___________.
a. $10,000, $9,000, and $1,000, respectively.
b. $10,000, $500, and $4,500, respectively.
c. $10,000, $1,000, and $9,000, respectively.
d. $1,000, $10,000, and $9,000, respectively

Answer 1

Answer:

C) $10,000, $1,000, and $9,000, respectively.

• actual reserves increase by $10,000
• required reserves increase by $1,000
• excess reserves increase by $9,000

Explanation:

the money deposited by the client = $10,000

bank's reserve ratio is 10% = $10,000 x 10% = $1,000

since the bank kept the whole $10,000 as reserves, then:

• actual reserves increase by $10,000
• required reserves increase by $1,000
• excess reserves increase by $9,000

The bank is only required to keep $1,000 in reserves, this means it can borrow the remaining $9,000 whenever they want.