Question

Angus Bank holds no excess reserves but complies with the reserve requirement. The required reserves ratio is ​8%, and reserves are currently ​$25 million. Part 2

The amount of deposits is ​$ enter your response here million. ​(Round your response to one decimal​ place.)

Answer 1

Angus Bank, with $25 million in reserves and an 8% reserve requirement, can support deposits of $312.5 million, calculated using the formula Total Deposits = Reserves / Reserve Requirement Ratio.

Step-by-step explanation:

Angus Bank, complying with an 8% reserve requirement, currently holds reserves of $25 million. To calculate the total deposits, we use the formula: Total Deposits = Reserves / Reserve Requirement Ratio. In this case, Total Deposits = $25 million / 0.08, resulting in $312.5 million. This calculation follows the principle that reserves are a fraction of total deposits as dictated by the reserve requirement ratio.

The reserve requirement is a percentage of deposits that banks must hold in reserve, and the given 8% indicates that for every dollar deposited, 8 cents must be held in reserve. As Angus Bank meets this requirement with $25 million in reserves, the total deposits it can support is determined by dividing the reserves by the reserve requirement ratio. Therefore, the total amount of deposits Angus Bank can have is $312.5 million, ensuring compliance with the reserve requirement while utilizing the available reserves efficiently.