Suppose that Serendipity Bank has excess reserves of $10,000 and checkable deposits of $150,000. Instructions: Enter your answer as a whole number. If the reserve ratio is 20 percent, what is the size of the bank's actual reserves? $
Question
Suppose that Serendipity Bank has excess reserves of 150,000. Instructions: Enter your answer as a whole number. If the reserve ratio is 20 percent, what is the size of the bank's actual reserves? $
Solution
To calculate the actual reserves of the bank, we need to know the reserve ratio and the checkable deposits. The reserve ratio is 20 percent, or 0.20, and the checkable deposits are $150,000.
Step 1: Multiply the checkable deposits by the reserve ratio to find the required reserves.
30,000
So, the bank is required to have $30,000 in reserves.
Step 2: Add the required reserves to the excess reserves to find the actual reserves.
10,000 (excess reserves) = $40,000
So, the size of the bank's actual reserves is $40,000.
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