Question

You have just begun a new job as a bank teller at Santa's Elf Bank. Your supervisor asks you what the difference is between reserves and excess reserves in terms of banking. You want to impress your supervisor, so you recall what you learned in your economics course in order to form your response.

What is the difference between reserves and excess reserves in terms of banking?

Excess reserves refer to the required amount that the banks have on hand beyond the required reserve amounts, and thus, is available to loan out. Reserves are the funds banks keep on hand to meet reserve requirements established by the Fed.

Reserves refer to the cash that banks have on hand to satisfy the demands of their employees and the reserve requirements of the Fed. Excess reserves refer to the amount of reserves banks have in excess of employee reserves.

Reserves refer to the cash banks have on hand to satisfy the Federal Reserve requirements. Excess reserves refer to the amount of reserves that banks have in excess of the legally required reserves.

Excess reserves refer to the reserves that the banks have to deposit with the Fed. Reserves are the money that banks have on hand to loan to their customers.

Answer 1

Reserves refer to the cash banks have on hand to satisfy the federal reserve requirements. Excess reserves refer to the amount of reserves that banks have an excess of the legally required reserves.

Reserves are the funds banks keep on hand to meet the demands of customers and reserve requirements of the fed. These funds are kept at the bank and the vault or on deposit at the fed.

Excess reserves or reserves in excess of the required reserves that the bank is required by law to hold. Banks will usually loan out these excess reserves, which can lead to an increase in the money supply.