Question

# 4. If a bank has $20,000 in deposits, and $2,500 in reserves, and if rr=10%, e=2.5% and c=15%, how much excess reserves does the bank have? Be clear about whether this is positive or negative. #5. If a bank has $20,000 in deposits, and $2,500 in reserves, and if rr=10%, e=2.5% and c=15%, how much currency is in circulation? Be clear about whether this is positive or negative. [Harder] Bonus #6. If a bank has undesired excess reserves of $500 and where e=10%, c=10%, and m*=4.4, what is the value of the required reserve ratio (rr)?

Answer 1

Answer 4 : Deposits = $20,000

Reserves = $2500

Required reserve ratio =10%

Required reserve = $20,000*(10/100)= $2000

Therefore, the excess reserve= Actual reserve - required reserve = $500

Answer 5 : c =Currency in circulation /Checkable deposits

0.15=Currency in circulation / $20,000

$20,000*0 .15 = Currency in circulation

Therefore, currency in circulation is $3000

Answer : m^*= 1+c / r+c

4.4 =1+0.10/ r+0.10

4.4r + 0 .44=1.10

4.4r = 0.66

r = 0.66/4.4=0.15

Therefore, the required reserve ratio is 15%