If the reserve requirement was 15% and a bank customer makes a deposit of $500, the initial result would be: a. a $3,333 increase in required reserves and an $425 increase in excess reserves. be. an $425 increase in required reserves and a $75 increase in excess reserves. c. a $75 increase in required reserves and a $425 increase in excess reserves. d. a $75 increase in required reserves and a $3,333 increase in excess reserves.

Question

Erika Chung

Business

30 June, 22:41

If the reserve requirement was 15% and a bank customer makes a deposit of $500, the initial result would be: a. a $3,333 increase in required reserves and an $425 increase in excess reserves. be. an $425 increase in required reserves and a $75 increase in excess reserves. c. a $75 increase in required reserves and a $425 increase in excess reserves. d. a $75 increase in required reserves and a $3,333 increase in excess reserves.

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Irene Jarvis · Answer 1

c. a $75 increase in required reserves and a $425 increase in excess reserves.

Explanation:

The required reserves refer to the minimum amount the bank has to maintain according to the central bank directive.

The excess reserves refer to the amount that the banks maintain above the central bank requirement.

According to this, the required reserves are equal to:

$500*15% = $75

The excess reserves are equal to:

$500-$75 = $425

The answer is that the initial result would be a $75 increase in required reserves and a $425 increase in excess reserves.