The manager of the bank where you work tells you that the bank has $300 million in deposits and $255 million dollars in loans.If the reserve requirement is 8.5 percent,how much is the bank holding in excess reserves?
A)$15 million
B)$19.5 million
C)$25.5 million
D)$0 million

Question

Quizplus · Accepted Answer

Excess reserves are calculated by subtracting required reserves from total reserves. Required reserves are the deposits that the bank is required to keep in reserve by law. The reserve requirement is given as 8.5 percent.

Required reserves = 8.5% of $300 million = 0.085 x $300 million = $25.5 million

Total reserves = $255 million (loans) + $25.5 million (required reserves) = $280.5 million

Excess reserves = Total reserves - Required reserves = $280.5 million - $25.5 million = $255 million

Therefore, the bank is holding $19.5 million in excess reserves. Option B is the correct answer.

The Manager of the Bank Where You Work Tells You