Table 29-4

Question

Bank of Pleasantville
Assets Liabilities
Reserves $3,000 Deposits $50,000
Loans 47,000

Refer to Table 29-4. If the Fed's reserve requirement is 5 percent, then what quantity of excess reserves does the Bank of Pleasantville now hold?
a. $250
b. $500
c. $3,600
d. $2,000

Answer 1

To determine the excess reserves that the Bank of Pleasantville holds, we first need to calculate the required reserves based on the reserve requirement.

1. Calculate Required Reserves:

   • The reserve requirement is 5% of deposits.
   • Required Reserves = 5% of Deposits
   • Required Reserves = 0.05 × $50,000 = $2,500

2. Determine Excess Reserves:

   • Excess Reserves = Total Reserves - Required Reserves
   • Total Reserves = $3,000 (given)
   • Excess Reserves = $3,000 - $2,500 = $500

Therefore, the quantity of excess reserves that the Bank of Pleasantville now holds is $500.

The correct answer is b. $500.