The figures in the table below are for a single commercial bank. All figures are in thousands of dollars. Refer to the data given above. If the reserve ratio is 10 percent and a check for $10,000 is drawn and cleared in favor of another bank, then the bank above will end up with excess reserves of:
A) $8,000
B) $12,000
C) $13,000
D) $18,000

Question

The figures in the table below are for a single commercial bank. All figures are in thousands of dollars.  Refer to the data given above. If the reserve ratio is 10 percent and a check for $10,000 is drawn and cleared in favor of another bank, then the bank above will end up with excess reserves of:
A) $8,000 
B) $12,000 
C) $13,000 
D) $18,000

Quizplus · Accepted Answer

The reserve requirement for this bank is 10%, meaning they must hold 10% of their deposits as reserves.

The initial level of reserves is $20,000 * 0.10 = $2,000.

When the $10,000 check is cleared, the bank's deposits decrease by $10,000, so reserves must decrease by $1,000 (10% of $10,000).

Therefore, the new level of reserves is $2,000 - $1,000 = $1,000.

Excess reserves are then calculated as actual reserves - required reserves:

Excess reserves = $1,000 - $200 = $8000

So the bank will end up with excess reserves of $8,000.

The Figures in the Table Below Are for a Single