Question

The People's Bank has $1 million in loans, $2 million in checkable deposits, and $300,000 in reserves. If the reserve ratio set by the Federal Reserve is 0.2, then the additional amount of _____ must be held as reserves.

a. $60,000
b. $200,000
c. $100,000
d. $600,000

Answer 1

excess reserve = $100000

correct option is C $100,000

Step-by-step explanation:

given data

loan = $1 million

deposits = $2 million

reserve = $300,000

reserve ratio = 0.2

to find out

additional amount as reserve

solution

we know here

first we find here required reserve that is express as

required reserves = reserve ratio × deposits ..........1

required reserves = 0.2 × 2 million

required reserve = $400000

so

excess reserve is difference of actual reserve and required reserve that is

excess reserve = 400000 - 300000

excess reserve = $100000

correct option is C $100,000