Final answer:
An increase of 20 million dollars in deposits will result in the bank's reserves increasing, but only by the amount required by the Federal Reserve's mandated reserve ratio, which is 3% of the deposits within the specified tier of reserves. The correct option is 4.
Step-by-step explanation:
When Bank A experiences an increase in deposits of 20 million dollars, and assuming it adheres to all reserve requirements, the impact on the bank's reserves can be determined by taking into account these requirements. With the given information and using the Federal Reserve's early 2015 example, the first tranche of deposits up to $14.5 million would require no reserves. Then, reserves equal to 3% would be required for the portion between $14.5 million and $103.6 million, and 10% for any amount above $103.6 million.
Given that the deposit is only $20 million, it falls into the second tier where a 3% reserve is required. Therefore, only a portion of the $20 million will be held as required reserves, not the full amount. This means the bank's reserves will increase, but only by the amount mandated by the Federal Reserve's reserve requirement ratio at that tier, which in this case would be 3% of the $20 million. Hence, the correct answer is neither option 1, 2, nor 3; the bank's reserves will increase by a fraction of the new deposits, not the full amount.