Question

A commercial bank has required reserves of $60 million and the reserve ratio is 20 percent. How much are the commercial bank's checkable-deposit liabilities?

A. $120 million
B. $900 million
C. $300 million
D. $1,200 million

Answer 1

The commercial bank's checkable-deposit liabilities are $300 million when it has required reserves of $60 million at a 20% reserve ratio.

Step-by-step explanation:

If a commercial bank has required reserves of $60 million and the reserve ratio is 20%, we can calculate the bank's checkable-deposit liabilities by dividing the required reserves by the reserve ratio. To find the checkable-deposit liabilities we use the formula: checkable-deposit liabilities = required reserves / reserve ratio. Therefore, checkable-deposit liabilities = $60 million / 0.20 = $300 million.

The correct answer is C. $300 million. This represents the total amount of checkable deposits that the bank holds which corresponds to the required reserves at a 20% reserve ratio.