Suppose the banking system currently has $400 billion in reserves, the reserve requirement is 8 percent, and excess reserves amount to $5 billion. What is the level of deposits?
A)$5,000 billion
B)$4,937.5 billion
C)$5,062.5 billion
D)$4,995 billion

Question

Quizplus · Accepted Answer

The level of deposits is $4,937.5 billion. This is calculated by dividing the reserves by the reserve requirement and then subtracting the excess reserves. In this case, the calculation is $400 billion / 0.08 - $5 billion = $4,937.5 billion.

Suppose the Banking System Currently Has $400 Billion in Reserves