Question

A commercial bank has excess reserves of $5000 and a required reserve ratio of 20 percent. It makes a loan of $6000 to a borrower. The borrower writes a check for $6000 that is deposited in another commercial bank. After the check clears, the first bank will be short of reserves in the amount of A. $1000 B. $1200 C. $5000 D. $6000

Answer 1

A. $1000

Step-by-step explanation:

First Bank's Excess Reserves = $5,000

Amount of Check = $6,000

First Bank's amount short of reserve = Excess Reserves - Amount of deposit withdraw

First Bank's amount short of reserve = $5,000 - $6,000

First Bank's amount short of reserve = -$1,000

First Bank is short of reserves in the amount of $1,000.