The table below shows the data (in millions) for Wells Fargo Bank in September 2007 and Septembe Suppose that the required reserve ratio is 3 percent. The data show that
A) the currency drain ratio increased.
B) Wells Fargo had excess reserves and could create money in 2007.
C) Wells Fargo was only able to make more loans in 2008 because it gained more deposits.
D) the Federal Reserve must have increased the required reserve ratio.

Question

The table below shows the data (in millions) for Wells Fargo Bank in September 2007 and Septembe Suppose that the required reserve ratio is 3 percent.  The data show that
A) the currency drain ratio increased. 
B) Wells Fargo had excess reserves and could create money in 2007. 
C) Wells Fargo was only able to make more loans in 2008 because it gained more deposits. 
D) the Federal Reserve must have increased the required reserve ratio.

Quizplus · Accepted Answer

In 2007, Wells Fargo had $19,367 million in total reserves, which is more than the required reserves of $14,239 million calculated as 3% of total deposits of $474,642 million. This means that Wells Fargo had excess reserves and could potentially create money through lending. In 2008, total reserves decreased to $17,304 million, which is still greater than the required reserves of $14,747 million calculated as 3% of total deposits of $491,558 million. However, it is unclear whether the Federal Reserve changed the required reserve ratio or if Wells Fargo decided to reduce its excess reserves. The currency drain ratio, which is the proportion of cash and deposits held by the public, decreased slightly from 0.16 in 2007 to 0.15 in 2008. The data do not indicate that Wells Fargo needed to gain more deposits in order to make more loans.

The Table Below Shows the Data (In Millions) for Wells