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28 April, 12:25

Assume that the commercial banking system has checkable deposits of $10 billion and excess reserves of $1 billion at a time when the reserve requirement is 20 percent. If the reserve requirement is now raised to 30 percent, the banking system then has

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  1. 28 April, 13:49
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    If the reserve rate is raised to 30%, the banking system will be able to comply with it without having to make any more reserves, since their total reserves are currently $3 billion.

    Explanation:

    If the banking system currently has $10 billion in deposits:

    a reserve ration of 20% = $2 billion in reserves excess reserves = $1 billion

    total reserves held by banks = $2 billion + $1 billion = $3 billion
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