   Chapter 12, Problem 2WNG

Chapter
Section
Textbook Problem

The required reserve ratio is 9 percent, required reserves are $10 million, and (total) reserves are$50 million. How much do excess reserves equal? How much do checkable deposits equal?

To determine

Identify the excess reserves and the checkable deposits.

Explanation

The total reserve can be calculated by using the following formula:

Total reserve =Required reserves+Excess reserves        (1)

The required reserves can be calculated by using the following formula:

Required reserves =r× Checkable deposits        (2)

Since, the total reserves is $50 million and the required reserves is$10 million, the excess reserve can be calculated by using the Eqution-1 as follows:

$50 million =$40 million+Excess reservesExcess reserves

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