Suppose the First National Bank acquires $500,000 in new deposits and the required reserve ratio is 12 percent.Which of the following is true?

A) Required reserves on the new deposits are $12,000.
B) Excess reserves on the new deposits are $500,000.
C) Required reserves on the new deposits are $60,000.
D) Excess reserves on the new deposits are $12,000.
E) Total reserves on the new deposits are $440,000.

Question

??????? ????????? · Accepted Answer

Final Answer : C, Explanation :  The required reserve ratio is 12%, which means that the bank must hold 12% of the new deposits as required reserves. Therefore, the required reserves on the new deposits are:$500,000 x 0.12 = $60,000Excess reserves are the reserves held above and beyond the required reserves. In this case, the excess reserves would be:Excess reserves = Total reserves - Required reservesExcess reserves = $500,000 - $60,000Excess reserves = $440,000So, the correct answer is C.

Definitions

Learning Objectives

Learning Objectives

Related questions