Question

Suppose that Third Fidelity Bank currently has $200,000 in demand deposits and $130,000 in outstanding loans. The Federal Reserve has set the reserve requirement at 10%.

1. Required:
a. Third Fidelity Reserves _______
b. Excess Reserves _________

Answer 1

Step-by-step explanation:

What is given:

Demand deposits = 200,000

Outstanding loans = 130,000

Reserve requirement = 10%

a. Reserve+Oustanding loan = Demand deposits

Reserves+130,000 = 200,000

Reserves = 70,000

b. Excess Reserves = Reserves - Required reserves

So first of all we need to find Required reserves

Required reserves = 200,000*10% = 20,000

Excess reserves = 70,000 - 20,000 = 50,000