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A bank with $500 million in deposits holds $35 million in vault cash, has $40 million on deposit with the Fed, and owns $50 million in government securities. If a fall in the reserve requirement ratio
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A bank with $500 million in deposits holds $35 million in vault cash, has $40 million on deposit with the Fed, and owns $50 million in government securities. If a fall in the reserve requirement ratio generates excess reserves of $25 million, and prior to the fall the bank had no excess reserves, then the former reserve ratio was _____ and the new reserve ratio is _____.

User Crysis
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1 Answer

15 votes
15 votes

Answer:

Former Reserve Ratio was 15%

Current Reserve ratio is 10%

Step-by-step explanation:

Actual reserves = Vault cash + deposit with Fed

Actual reserves = $35 + $40

Actual Reserves = $75 million.

Reserves ratio = Actual reserves / Deposits

Reserve Ratio = 15%

User Wurlitzer
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