# Suppose that Third National Bank has reserves of \$ 20,000 and checkable deposits of \$ 100,000. The reserve ratio is 20 %. The bank sells \$ 5,000 in securities to the Federal Reserve Bank in its district, receiving a \$ 5,000 increase in reserves in return. What level of excess reserves does the bank now have?

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Suppose that Third National Bank has reserves of \$ 20,000 and checkable deposits of \$ 100,000. The reserve ratio is 20 %. The bank sells \$ 5,000 in securities to the Federal Reserve Bank in its district, receiving a \$ 5,000 increase in reserves in return.

What level of excess reserves does the bank now have?

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Step 1

Reserves = \$20,000

Deposits = \$100,000

Reserve Ratio=20%

Securities sold by bank=\$5000

Increase in reserves after selling securities = \$5000

Since the reserve ratio is 20%, bank needs to maintain only 20% of its reserves. Therefore, its reserves are as:

Hence, its required reserves are \$20,000.

Step 2

Since its reserves increases after selling securities, bank’s t...

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