Suppose that Third National Bank has reserves of $10,000 and checkable deposits of $100,000. The reserve ratio is 10 percent. The bank now sells $15,000 in securities to the Federal Reserve Bank in its district, receiving a $15,000 increase in reserves in return. What level of excess reserves does the bank now have?

Question

Jayla Christian

Business

24 December, 07:51

Suppose that Third National Bank has reserves of $10,000 and checkable deposits of $100,000. The reserve ratio is 10 percent. The bank now sells $15,000 in securities to the Federal Reserve Bank in its district, receiving a $15,000 increase in reserves in return. What level of excess reserves does the bank now have?

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Answers (1)

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Adalynn Levy · Answer 1

The correct answer is $15,000.

Explanation:

According to the scenario, the computation of the given data are as follows:

Checkable deposits = $100,000

Required reserves = 10% of deposits

Reserves = $100,000 * 10% = $10,000

After selling securities, the reserves increase by $15,000.

So, total reserves = $10,000 + $15,000 = $25,000

Now, Excess Reserves = Actual Reserves - 10% of Deposits

= $25,000 - $10,000

= $15,000