Question
Asked Feb 3, 2020
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6. Required and excess reserves
Suppose that Third Fidelity Bank currently has $150,000 in demand deposits and $97,500 in outstanding loans. The Federal Reserve has set the
reserve requirement at 10%.
Third Fidelity
Reserves
Required Reserves
Excess Reserves
(Dollars)
(Dollars)
(Dollars)
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6. Required and excess reserves Suppose that Third Fidelity Bank currently has $150,000 in demand deposits and $97,500 in outstanding loans. The Federal Reserve has set the reserve requirement at 10%. Third Fidelity Reserves Required Reserves Excess Reserves (Dollars) (Dollars) (Dollars)

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Expert Answer

Step 1

The demand deposits equal reserves and outstanding loan.

Reserves + Outstanding Loan = Demand Deposits

Reserves + $97,500 = $150,000

Reserves = $150,000 - $97,500

Reserves = $52,500

So, the value of reserves is $52,500.

Step 2

The required reserves are the proportion of deposits needed to be maintained as reserves. This amount cannot be used for lending purposes. The reserve requiremen...

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