Suppose that from a new checkable deposit, First National Bank holds two million

Question

Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and nine million dollars in excess reserves. Given this information, we can say First National Bank faces a required reserve ratio of ________ percent.

A) ten                   B) twenty                            C) eighty                             D) ninety

Suppose that from a new checkable deposit, First National Bank holds eight million dollars on deposit with the Federal Reserve, nine million dollars in excess reserves, and faces a required reserve ratio of ten percent. Given this information, we can say First National Bank has ________ million dollars in required reserves.

A) one                  B) two                                 C) nine                                D) ten

Explanation / Answer

1) Required reserves=Reserve ratio*demand deposit

Demand deposit= 8+2

=10

Reserve ratio= 1/10

=0.1

=0.1*100

= 10%

Hence the Required reserve ratio is A) ten Percent

2) Required reserve ratio = 10%

Total deposit= 10 million

Excess reserve= 9 million $

Required reserve= 10% * 10

=$1 million

A) one

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