Final answer:
The bank's required reserves would increase by $200, which is the result of multiplying the $2,000 deposit by the 10% reserve ratio. Hence, the correct answer is option A. Reserve requirements are set by the Federal Reserve to ensure banks have enough funds on hand to meet demand for withdrawals.
Step-by-step explanation:
The City National of New Jersey receives a cash deposit of $2,000 and the required reserve ratio is 10%. Given that it already has $500 million in deposits, to calculate the change in required reserves, we would multiply the new deposit by the reserve ratio. This yields:
$2,000 * 10% = $200
The bank’s required reserves would increase by $200, not by $20,000, $300, or $50 million. Therefore, the correct answer is A. The bank's required reserves increased by $200. This is because the increase in required reserves is directly proportional to the increase in deposits, following the reserve ratio rule. Note that the overall level of bank capital does not directly change by the amount deposited; instead, the deposit would impact the bank’s assets and liabilities. The reserve requirement is a factor used by the Federal Reserve to control the amount of money that banks must hold and not lend out.