Table 29-3. An economy starts with $50,000 in currency. All of this currency is deposited into a single bank, and the bank then makes loans totaling $45,750. The T-account of the bank is shown below.

Question

Assets Liabilities
Reserves $4,250 Deposits $50,000
Loans 45,750

Refer to Table 29-3. The bank’s reserve ratio is
a.

8.5 percent.
b.

17.5 percent.
c.

91.5 percent.
d.

100 percent.

Answer 1

To calculate the reserve ratio, you can use the formula:

\[ \text{Reserve Ratio} = \frac{\text{Reserves}}{\text{Deposits}} \]

From the T-account provided:

• Reserves = $4,250
• Deposits = $50,000

Plugging in these values:

\[ \text{Reserve Ratio} = \frac{4,250}{50,000} \]

Calculating this gives:

\[ \text{Reserve Ratio} = 0.085 = 8.5% \]

So, the bank’s reserve ratio is:

a. 8.5 percent.