Question

The intracoastal bank has $5 million in deposits and $500,000 in reserves. if the required reserve ratio is 5%, excess reserves are equal to

Answer 1

We write down the equation that would allow us to solve for the required reserves.
required reserve = (deposit)(required reserve ratio)

From the items above, we are given that,
deposit = $5 million
required reserve ratio = 5% = 0.05

Substituting,
required reserve = (0.05)($5 million)
required reserve = $250,000

The total amount that the bank for the reserves is $5.5 million.
The excess reserve is equal to,
excess reserve = ($5.5 M) - ($250,000)
excess reserve = $5.25 M

ANSWER: $5.25M