Question

A commercial bank has actual reserves of $50,000 and checkable deposits of $200,000, and the required reserve ratio is 20%. The excess reserves of the bank are:

A. $10,000
B. $20,000
C. $40,000
D. $50,000

Answer 1

The excess reserves of the bank are calculated by subtracting the required reserves from the actual reserves; in this scenario, they equal $10,000, which is option A.

Step-by-step explanation:

To calculate the excess reserves of a commercial bank, we first need to determine the required reserves. The required reserve ratio is 20%, thus the bank must maintain reserves of 20% of its checkable deposits of $200,000, which amounts to $200,000 * 20/100 = $40,000. The bank has actual reserves of $50,000. To find the excess reserves, subtract the required reserves from the actual reserves, i.e., $50,000 - $40,000 = $10,000.

Therefore, the excess reserves of the bank are $10,000, which corresponds to option A.