Final answer:
When the required reserve ratio decreases from 10 percent to 7 percent, banks are required to hold a smaller percentage of their deposits as reserves.
Step-by-step explanation:
When the required reserve ratio decreases from 10 percent to 7 percent, banks are required to hold a smaller percentage of their deposits as reserves. To calculate the amount of deposits that the bank is required to hold in reserves, we can subtract the new required reserve ratio (7 percent) from 100 percent to get the percentage that the bank is not required to hold in reserves.
Then, multiply this percentage by the total deposits in the bank to find the amount of deposits that the bank is required to hold in reserves.
For example, let's say the bank has $1,000,000 in deposits. With a required reserve ratio of 10 percent, the bank would be required to hold $100,000 in reserves. But if the required reserve ratio decreases to 7 percent, the bank would only be required to hold $70,000 in reserves, which is 7 percent of $1,000,000.