Question

Required and excess reserves Suppose that Second Republic Bank currently has $200,000 in demand deposits and $130,000 in outstanding loans. The Federal Reserve has set the reserve requirement at 10%.What are the Reserves, Required Reserves, and Excess Reserves?

Answer 1

Reserves = $70,000

Required reserves = $20,000

Excess Reserves = $50,000

Step-by-step explanation:

The data given from the question:

Demand deposits = $200,000

Outstanding loans = $130,000

Reserve requirement = 10%

And we are solving for:

Reserves, Required Reserves and Excess Reserves

For these we will look at 3 balance sheet

Assets = Total liabilities + capital

Reserves + Outstanding Loan = Demand Deposits

Reserves + $130,000 = $200,000

Reserves = $70,000

Since reserve ratio =10%, Out of total $200,000 deposits, required reserves = $200,000 x 10% = $20,000

Excess Reserves = Total Reserves - Required Reserves = $(70,000 - 20,000) = $50,000.