Question

Assume that Bank A holds total reserves of $978, the required reserves are $432 and total deposit is $3,600. If the government purchases bonds worth $250 from Bank A, excess reserves of this bank will increase by _____.

Answer 1

The excess reserves of Bank A will increase by $250 after the government purchases bonds from them.

Step-by-step explanation:

To calculate the increase in excess reserves, we need to subtract the required reserves from the total reserves.

In this case, the total reserves are $978 and the required reserves are $432. So, the initial excess reserves are $978 - $432 = $546.

When the government purchases bonds worth $250 from Bank A, the bank's reserves will increase by the same amount.

As a result, the excess reserves will also increase by $250.

Therefore, the excess reserves of Bank A will increase by $250 after the government purchases bonds from them.