Question

Bank deposits at the Federal Reserve = $40 billion, vault cash = $2 billion, the required reserve ratio = 0.10, and total checkable deposits = $400 billion. It follows that required reserves equal __________ billion, (total) reserves equal __________ billion and excess reserves equal __________ billion.A. $38; $40; $2B. $2; $40; $38C. $42; $40; $2D. $42; $42; $2E. $40; $42; $2

Answer 1

the correct option is E. $40; $42; $2

Step-by-step explanation:

The following information is given in the question which is needed to solve the question is shown below:

1. Bank deposits at Federal reserve are $40 billion

2. Vault cash is $2 billion which means it is needed to meet day to day expenses.

So, the required reserve is $40 million which is mentioned in the question

The total reserve is equaled to

= Bank deposits + vault cash

= $40 billion + $2 billion

= $42 billion

And, the excess reserve equals to

= Total reserve - bank deposits

= $42 billion - $40 billion

= $2 billion

The other things like checkable deposits and the required reserve ratio is irrelevant. Therefore, it is ignored.

Hence, the required reserves are $40 billion, (total) reserves are $42 billion and excess reserves are $2 billion.

Thus, the correct option is E. $40; $42; $2