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Given a reserve requirement of 12.5%, a bank currently meets their reserve requirements with $15,000,000 in excess reserves. If the reserve requirement increases and the bank must hold an additional $1,800,000, by how many percentage points did the reserve requirement increase

User Nbermudezs
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5 votes

Answer:

1.5%

Step-by-step explanation:

Reserves is the total amount of a bank's deposit that is not given out as loans

Required reserves is the percentage of deposits required of banks to keep as reserves by the central bank

Excess reserves is the difference between reserves and required reserves

Total increase in reserve = $15,000,000 + $1,800,000= $16,800,000

New excess reserve = total increase in reserve x initial reserve requirement) / initial excess reserve

($16,800,000 x 12.5%) / $15,000,000 = 14%

Increase in reserve requirement = 14% - 12.5% = 1.5%

User IMI
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