Question

Suppose that a bank’s customer deposits $4,000 in her checking account. The required reserve ratio is 0.25. What are the required reserves on this deposit? What is the largest loan that the bank can make on the basis of the new deposit? If the bank chooses to hold reserves of $3,000 on the new deposit, what are the excess reserves on the deposit?

Answer 1

required reserved $1000

loan that bank can offer $3000

excessive reserve on the deposit $ 2000

Step-by-step explanation:

the required reserved can be obtained by suing following relation

required reserved = customer deposits * reserve ration

= 4000*0.25 = $1000

the largest loan that bank can offer will be = 4000 - 1000 = $3000

if the bank hold $3000, the excessive reserve on the deposit = 3000 - 1000 =$ 2000