Question

Suppose Southeast Mutual Bank, Walls Fergo Bank, and PJMorton Bank all have zero excess reserves. The required reserve ratio is presently set at 20%. Edison, a Southeast Mutual Bank customer, deposits $750,000 into his checking account at the local branch.

Answer 1

The impact of a customer deposit on the excess reserves of banks is analyzed in this Business question. Edison, a customer of Southeast Mutual Bank, deposits $750,000 into his checking account. The required reserve ratio of 20% means that the bank must set aside $150,000 as required reserves due to the deposit.

Step-by-step explanation:

The subject of this question is Business and it is suitable for High School level. The question is about the impact of a customer deposit on the excess reserves of banks. In this scenario, Southeast Mutual Bank customer, Edison, deposits $750,000 into his checking account at the local branch. To analyze the impact on excess reserves, we need to consider the required reserve ratio, which is currently set at 20%.

First, we need to calculate the required reserve amount for the deposit. The required reserves are calculated by multiplying the deposit amount by the required reserve ratio. In this case, the deposit amount is $750,000 and the required reserve ratio is 20% or 0.20. So, the required reserves would be $750,000 x 0.20 = $150,000.

Since the three banks mentioned in the question have zero excess reserves, any increase in deposits would require them to set aside the corresponding required reserves. Therefore, Southeast Mutual Bank would need to set aside $150,000 as required reserves due to Edison's deposit.