Question 1

Suppose that Econ Bank has excess reserves of $10,000 and checkable deposits of $150,000. If the reserve ratio is 25percent, what is the size of the bank's actual reserves?

Required reserve= 25% of checkable deposits

• = 25% of $150,000
• = $37,500

Actual reserve= $37,500+ 10,000 (excess reserves)

• = $47,500

Excess reserve is = $47,500 - $37,500

= $10,000

OR

The required reserves deposits *reserve ratio= 150000*0.2=30000

Actual reserves excess reserves +required reserves

=10000+30000

= $40000

The actual reserves are $40,000.

OR

Size of the bank's actual reserves = $47500.

Required Reserve= 25/100 * $150,000= $37500

Excess reserves =$1000

Actual Reserve= Required Reserve + Excess Reserve

= $37,000 + $10,000 = $47,000

Reserve Ratio = 25%.

Excess reserve = $10000.

Check-able deposits = $150000.

Reserve Ratio = Required Reserve / Deposits *100

25% = Required reserve / $150000

Required reserve = $150000 * 25%

= $37500.

Actual reserve= Required reserve + Excess reserve

= $37,500 + $10,000

= $47,500.

Hence, size of the bank's actual reserves = $47,500.

OR

The first step is to determine the bank's required reserves. This is the product of the required reserve ratio (in decimal form) and checkable deposits. Required reserves = 0.25 $150,000

= $37 500

The secondis to compute real reserves. This is the total of necessary reserves and extra reserves. Actual reserves = needed reserves + excess reserves ,

= $37 500 + $8,000

= $45,000