Question

Consider the information for First National Bank.

If the minimum reserve ratio is 20%, what are the excess reserves available for the bank to lend?

a. $76 million
b. $8 million
c. $6 million
d. $4 million
e. $20 million.

Answer 1

D $4 million

Step-by-step explanation:

Bank Reserves = Bank's Deposit at Central Bank + Vault Cash.

Bank Reserves = $15million + $5million = $20 million

Required reserves = 20% of $80 million = $16 million.

Bank Reserves = Required Reserves + Excess Reserves

Excess Reserves = Bank reserves - Required reserves

Excess Reserves = $20million - $16million =$4 million