Final answer:
To calculate the bank's excess reserves, subtract the required reserves from the actual reserves. If there is no currency drain, the actual reserves would be equal to the total deposits. The bank's excess reserves would be $950,000 and the quantity of the loan would also be $950,000.
Step-by-step explanation:
The desired reserve ratio on all deposits is 5%. To calculate the bank's excess reserves, we need to subtract the required reserves from the actual reserves. Excess reserves = Actual reserves - Required reserves.
If there is no currency drain, it means that all deposits are held as reserves. So, the actual reserves would be equal to the total deposits. The required reserve ratio of 5% means that the required reserves are 5% of the total deposits.
Let's say the total deposits are $1,000,000. The required reserves would be $1,000,000 x 5% = $50,000. Therefore, the excess reserves would be $1,000,000 - $50,000 = $950,000.
If the bank uses all of these excess reserves to make a loan, the quantity of the loan would be equal to the excess reserves, which is $950,000. The quantity of total deposits after the bank has made the loan would still be $1,000,000 since the loan does not affect the total deposits.