Question

Assume a target reserve ratio of 10%. A cheque for $45000 is drawn on an account in Bank B and deposited in a checking deposit in Rank A. Round your final answers to 2 decimal places, if necessary. Do not enter comma ", or doilar signi ($) while entering your anewer. By how much have the excess reserves of Bank A increased?

Answer 1

The excess reserves of Bank A have increased by $4500.

Step-by-step explanation:

To find the increase in excess reserves of Bank A, we need to determine the increase in required reserves caused by the deposit. The target reserve ratio is 10%, so Bank A must hold 10% of the deposit as required reserves.

Required reserves = Deposit * Reserve ratio

Required reserves = $45000 * 0.10

Required reserves = $4500

The increase in excess reserves is equal to the increase in required reserves. Therefore, the excess reserves of Bank A have increased by $4500.