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7 October, 02:05

Required and excess reserves Suppose that Second Republic Bank currently has $200,000 in demand deposits and $130,000 in outstanding loans. The Federal Reserve has set the reserve requirement at 10%. What are the Reserves, Required Reserves, and Excess Reserves?

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  1. 7 October, 04:02
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    Reserves = $70,000

    Required reserves = $20,000

    Excess Reserves = $50,000

    Explanation:

    The data given from the question:

    Demand deposits = $200,000

    Outstanding loans = $130,000

    Reserve requirement = 10%

    And we are solving for:

    Reserves, Required Reserves and Excess Reserves

    For these we will look at 3 balance sheet

    Assets = Total liabilities + capital

    Reserves + Outstanding Loan = Demand Deposits

    Reserves + $130,000 = $200,000

    Reserves = $70,000

    Since reserve ratio = 10%, Out of total $200,000 deposits, required reserves = $200,000 x 10% = $20,000

    Excess Reserves = Total Reserves - Required Reserves = $ (70,000 - 20,000) = $50,000.
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