Suppose the reserve ratio is RR. Then,Question 10Answera.required reserves = RR × excess reserves.b.required reserves = RR × actual reserves.c.required reserves = RR × loans.d.required reserves = RR × deposits.
Question
Suppose the reserve ratio is RR. Then,Question 10Answera.required reserves = RR × excess reserves.b.required reserves = RR × actual reserves.c.required reserves = RR × loans.d.required reserves = RR × deposits.
Solution
The correct answer is:
d. Required reserves = RR × deposits.
Here's why:
The reserve ratio (RR) is the portion of depositors' balances that banks must have on hand as cash. This is a requirement by the Federal Reserve to ensure banks do not run out of cash to meet the demand of account holders to withdraw funds.
So, the required reserves is calculated by multiplying the reserve ratio (RR) by the total amount of deposits. This gives the amount of money that the bank must hold in reserve.
The other options are incorrect because:
a. Excess reserves are any reserves held by a bank that exceed the minimum level required by the central bank. So, RR is not multiplied by excess reserves to get required reserves.
b. Actual reserves are the total amount of reserves held by a bank, including both required and excess reserves. So, RR is not multiplied by actual reserves to get required reserves.
c. Loans are assets to the bank, not liabilities. Depositors' balances are liabilities. The reserve requirement applies to liabilities, not assets. So, RR is not multiplied by loans to get required reserves.
Similar Questions
Suppose a bank has $10,000 in deposits and $1,000 in reserves. The required reserve ratio is 5%. Which of the following occurs if the required reserve ratio is increased to 10%?Question 48Select one:a.The bank's required reserves will decrease to $500.b.The bank's excess reserves will increase to $1,000.c.The bank's required reserves will increase to $1,000.d.The bank's ability to create loans increases by 5%.
Total reserves are the sum of ________ and ________.A) excess reserves; borrowed reservesB) required reserves; currency in circulationC) vault cash; excess reservesD) excess reserves; required reserves
5. When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and the bank chooses not to hold any excess reserves but makes loans instead, then, in the bank's final balance sheet A) the assets at the bank increase by $800,000. B) the liabilities of the bank increase by $1,000,000. C) the liabilities of the bank increase by $800,000. D) reserves increase by $160,000. 6. Which of the following statements are TRUE? A) A bank's assets are its sources of funds. B) A bank's liabilities are its uses of funds. C) A bank's balance sheet shows that total assets equal total liabilities plus equity capital. D) A bank's balance sheet indicates whether or not the bank is profitable. 7. Which of the following statements is FALSE? A) A bank's assets are its uses of funds. B) A bank issues liabilities to acquire funds. C) The bank's assets provide the bank with income. D) Bank capital is recorded as an asset on the bank balance sheet.
The ________ the amount of excess reserves a bank holds, the ________ the size of the deposit multiplier.
Suppose that from a new checkable deposit, First National Bank holds two million dollarsin vault cash, one million dollars in required reserves, and faces a required reserve ratio of tenpercent. Given this information, we can say First National Bank has ________ million dollarsin excess reserves.A) oneB) twoC) nineD) ten
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