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Chapter 25: Problem 1

If a bank has total deposits of \(\$ 100,000\) with \(\$ 10,000\) set aside to meet reserve requirements of the Fed, its required reserve ratio is a. \(\$ 10,000\) b. 10 percent. c. 0.1 percent. d. 1 percent.

Short Answer

Expert verified
The required reserve ratio of the bank is b. 10 percent.

Step by step solution

01

Understand the required reserve ratio formula

The required reserve ratio formula is given by: \(Required\ Reserve\ Ratio = \frac{Reserve\ Requirements}{Total\ Deposits}\) In this case, Reserve Requirements = \(\$10,000\) and Total Deposits = \(\$100,000\).
02

Calculate the required reserve ratio

Using the formula, we can now calculate the required reserve ratio: \(Required\ Reserve\ Ratio = \frac{\$10,000}{\$100,000}\)
03

Simplify the expression

Simplify the numbers in the fraction: \(Required\ Reserve\ Ratio = \frac{10,000}{100,000}\) \(Required\ Reserve\ Ratio = 0.1\)
04

Express the reserve ratio as a percentage

To express the reserve ratio as a percentage, multiply the fraction by 100: \(Required\ Reserve\ Ratio = 0.1 * 100\) \(Required\ Reserve\ Ratio = 10\%\)
05

Compare with the options

Now, we can compare our calculated reserve ratio with the options given in the exercise: a. \(\$10,000\) (not a percentage, so it's ruled out) b. 10 percent (matches our calculation) c. 0.1 percent (not correct, it's too small) d. 1 percent (not correct, it's too small) The correct answer is b, which is the required reserve ratio of the bank is 10 percent.

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Most popular questions from this chapter

The cost to a member bank of borrowing from the Federal Reserve is measured by the a. reserve requirement. b. price of securities in the open market. c. discount rate. d. yield on government bonds.

Assume a simplified banking system in which all banks are subject to a uniform required reserve ratio of 30 percent and checkable deposits are the only form of money. A bank that receives a new deposit of \(\$ 10,000\) is able to extend new loans up to a maximum of a. \(\$ 3,000\) b. \(\$ 7,000\) c. \(\$ 10,000\) d. \(\$ 30,000\)

In a simplified banking system in which all banks are subject to a 20 percent required reserve ratio, a \(\$ 1,000\) open market purchase by the Fed would cause the money supply to a. increase by \(\$ 100\). b. decrease by \(\$ 200\). c. decrease by \(\$ 5,000\). d. increase by \(\$ 5,000\).

The Best National Bank operates with a 10 percent required reserve ratio. One day a depositor withdraws \(\$ 400\) from his or her checking account at the bank. As a result, the bank's excess reserves a. fall by \(\$ 400\) b. fall by \(\$ 360\). c. rise by \(\$ 40\) d. rise by \(\$ 400\).

If an increase of \(\$ 100\) in excess reserves in a simplified banking system can lead to a total expansion in bank deposits of \(\$ 400,\) the required reserve ratio must be a. 40 percent. b. 400 percent. c. 25 percent. d. 4 percent. e. 2.5 percent.
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