Question

Suppose that Second Republic Bank currently has $100,000 in demand deposits and $70,000 in outstanding loans. The Federal Reserve has set the reserve requirement at 20%. Please calculate Second Republic Bank's:_________.(a) reserves(b) required reserves(c) excess reserves

Answer 1

$30,000

$20,000

$10,000

Step-by-step explanation:

Reserves is the total amount of a bank's deposit that is not given out as loans

Reserves = Deposits - outstanding loans

$100,000 - $70,000 = $30,000

Required reserves is the percentage of deposits required of banks to keep as reserves by the central bank

Required reserves = reserve requirement x deposits

0.2 x $100,000 = $20,000

Excess reserves is the difference between reserves and required reserves

$30,000 - $20,000 = $10,000