Question

If the Fed's reserve requirement is 5 percent, then what quantity of excess reserves does the Bank of Cheerton now hold?

Answer 1

The quantity of excess reserves that the Bank of Cheerton now hold is $210

From the attached table, the amount generated on the reserve is $4,200

If the Fed's reserve requirement is 5 percent, then the quantity of excess reserves that the Bank hold is given as:

Quantity of excess reserves = 5% of $4,200

Quantity of excess reserves = 0.05 * 4200

Quantity of excess reserves = $210

Hence the quantity of excess reserves that the Bank of Cheerton now holds is $210.

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