Question

If all the commercial banks in the banking system collectively have $300 million in cash reserves and are satisfying their target reserve ratio of 20%, what is the amount of deposits they have?

A) $0
B) $60 million
C) $600 million
D) $1500 million
E) $2000 million

Answer 1

The total amount of deposits in the banking system with $300 million in cash reserves and a 20% reserve ratio is $1500 million.

Step-by-step explanation:

The student has asked what the total amount of deposits is in the banking system if commercial banks collectively have $300 million in cash reserves and they are maintaining a target reserve ratio of 20%. To find this, we perform a simple calculation based on the reserve ratio formula: Total Deposits = Cash Reserves / Reserve Ratio. Since the reserve ratio is 20%, or 0.20, we have Total Deposits = $300 million / 0.20, which equals $1500 million. Therefore, the correct answer is D) $1500 million.