Scenario 29-1.
The monetary policy of Namdian is determined by the Namdian Central Bank.The local currency is the dia.Namdian banks collectively hold 100 million dias of required reserves,25 million dias of excess reserves,250 million dias of Namdian Treasury Bonds,and their customers hold 1,000 million dias of deposits.Namdians prefer to use only demand deposits and so the money supply consists of demand deposits.
-Refer to Scenario 29-1.Assume that banks desire to continue holding the same ratio of excess reserves to deposits.What is the reserve requirement and what is the reserve ratio?
A)2 percent,8 percent
B)8 percent,10 percent
C)10 percent,12.5 percent
D)None of the above is correct.

Question

Quizplus · Accepted Answer

Excess reserves are 2.5% of total deposits (25 million/1000 million). Therefore, required reserves are also 2.5% of deposits.
Total reserves = required reserves + excess reserves = 125 million dias
Reserve ratio = total reserves/total deposits = 12.5% (125 million/1000 million) 
So, the reserve requirement is 10 percent (required reserves as a percentage of deposits) and the reserve ratio is 12.5 percent (total reserves as a percentage of deposits).

Scenario 29-1. The Monetary Policy of Namdian Is Determined by the Namdian