Question

If a bank has $10 million on deposit, and the Federal Reserve specifies a reserve requirement of 30 percent, then how much money would the bank need at all times on hand?

Answer 1

$3 million

Step-by-step explanation:

The reserve requirement is the fraction of all deposited liabilities that a bank must have on hand at all times instead of investing. If the Federal Reserve specifies a 30% requirement and the bank has $10 million on deposit, the amount needed at the bank, at all times, is:

`R=\$10*0.3\\R=\$3\ million`

The bank must have a reserve of $3 million