Suppose the ABC bank has excess reserves of R4, 000 and outstanding cheque deposits of R80, 000. If the reserve requirement is 25 percent, what is the size of the bank's actual reserves?

Answer 1

To find the size of the bank's actual reserves, we can use the reserve requirement and the outstanding cheque deposits.

1. First, determine the required reserves based on the reserve requirement: $$\text{Required Reserves}=\text{Reserve Requirement}\times \text{Outstanding Cheque Deposits}$$ $$\text{Required Reserves}=0.25\times R80,000=R20,000$$

2. The bank's actual reserves can be calculated by adding the excess reserves to the required reserves: $$\text{Actual Reserves}=\text{Required Reserves}+\text{Excess Reserves}$$ $$\text{Actual Reserves}=R20,000+R4,000=R24,000$$

So, the size of the bank's actual reserves is R24,000.