Question

A commercial bank has excess reserves of $500 and a required reserve ratio of 20%; it grants a loan of $1000 to a borrower. If the borrower writes a check for $1000 which is deposited in another commercial bank, the first bank will be short of reserves, after the check has been cleared, in the amount of:

Answer 1

$500

Step-by-step explanation:

Calculation for amount that the first bank will be short of reserves, after the check has been cleared

Using this formula

Reserve shortage=Loan granted(check)-Excess reserves

Let plug in the formula

Reserve shortage=$1,000-$500

Reserve shortage=$500

Therefore the first bank will be short of reserves, after the check has been cleared, in the amount of:$500