$\text { Assets }\quad\quad\quad\quad\quad\quad\quad \text { Liabilities }$
$\begin{array}{|lc|lc|}
\hline \text { Reserves } & \$ 400 &\text { Deposits }&\$1,200\\text { Loans }&\$800\
\text { Total } & \$ 1,200&\text { Total }&\$1,200 \
\hline
\end{array}$
-In the balance sheet above, the entries are in millions of dollars for the FBN Bank. After FBN Bank loans the maximum amount it can, the loans have been spent, and the proceeds have been deposited in other banks, FBN Bank has excess reserves of
A) $300 million.
B) $200 million.
C) $0.
D) $100 million.

Question

$\text { Assets }\quad\quad\quad\quad\quad\quad\quad \text { Liabilities }$
$\begin{array}{|lc|lc|}
\hline \text { Reserves } & \$ 400 &\text { Deposits }&\$1,200\\text { Loans }&\$800\
\text { Total } & \$ 1,200&\text { Total  }&\$1,200 \
\hline
\end{array}$
-In the balance sheet above, the entries are in millions of dollars for the FBN Bank. After FBN Bank loans the maximum amount it can, the loans have been spent, and the proceeds have been deposited in other banks, FBN Bank has excess reserves of
A) $300 million.
B) $200 million.
C) $0.
D) $100 million.

Quizplus · Accepted Answer

The bank's reserves are $400 million, and the required reserves are 10% of deposits, which is $120 million (10% of $1,200 million). Therefore, the excess reserves are $400 million - $120 million = $280 million. After lending out the maximum amount, the excess reserves become $0.

Assets Liabilities \text { Assets }\quad\quad\quad\quad\quad\quad\quad \text { Liabilities } Assets Liabilities -In the Balance Sheet Above, the Entries Are in Millions

$\text { Assets }\quad\quad\quad\quad\quad\quad\quad \text { Liabilities }$ -In the Balance Sheet Above, the Entries Are in Millions