Question

Consider the following data about the economy: currency outstanding (C) = $1 trillion, total deposits (D) = $750 billion, total reserves (R) = $76 billion, and the required reserve ratio (RR ratio) = 10%. What is the level of excess reserves for this economy?

1) $1 billion
2) $10 billion
3) $75 billion
4) $76 billion

Answer 1

The level of excess reserves, subtract the required reserves ($75 billion) from the total reserves ($76 billion), resulting in excess reserves of $1 billion.

Step-by-step explanation:

The student's question is about calculating the level of excess reserves for an economy given certain financial data. The required reserve ratio (RR ratio) is 10%, which means that banks are required to hold reserves equal to 10% of their deposits. To find the excess reserves, we first calculate the required reserves by multiplying the total deposits (D) by the RR ratio:

Required Reserves = D * RR ratio

Required Reserves = $750 billion * 10% = $75 billion

Since the total reserves in the economy are $76 billion, we can find the excess reserves by subtracting the required reserves from the total reserves:

Excess Reserves = Total Reserves - Required Reserves

Excess Reserves = $76 billion - $75 billion

Excess Reserves = $1 billion

Therefore, the correct answer is 1) $1 billion.