Imagine that Stella deposits $25,000 in currency (which she had been storing in her closet) into her checking account at the bank. Assume that this institution has a required reserve ratio of 25 percent. As a result of this deposit, by how much will the bank's required reserves increase? a. $0 b. $31,250 c. $6,250 d. $100,000 e. $25,000

Question

Abdiel Pruitt

Business

17 July, 11:36

Imagine that Stella deposits $25,000 in currency (which she had been storing in her closet) into her checking account at the bank. Assume that this institution has a required reserve ratio of 25 percent. As a result of this deposit, by how much will the bank's required reserves increase? a. $0 b. $31,250 c. $6,250 d. $100,000 e. $25,000

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Answers (1)

Know the Answer?

Trevin Austin · Answer 1

The required reserves increases by $6.250

Explanation:

Step 1. Given information.

Stella deposits $25.000

Required reserve 25%

Step 2. Formulas needed to solve the exercise.

Required reserves = deposits * reserve ratio

Excess reserves = deposits - required reserves

Step 3. Calculation.

Required reserves = 25.000 * 0.25 = $6.250

Excess reserves = 25.000 - 6.250 = $18.750

Step 4. Solution.

The required reserves are $6.250 and the excess reserves is $18.750