The Norfolk Bank has $18,000 in excess reservces and the reserve ratio is 20 percent. Which level of checkable deposits and reserves might this bank hold?
a. $160,000 in checkable-deposit liabilities and $47,000 in reserves.
b. $140,00 in checkable-deposit liabilities and $46,000 in reserves
c. $120,000 in cehckable-deposit liabilities and $32,000 in reserves
d. $100,000 in checkable-deposit liabilites and $30,000 in reserves
Use algebra. Total reserves are required reserves plus excess reserves.
Required reserves are .2*liabilities, and your are given excess reserves. So, simply multiply the reserve requirement ratio to each of the liability amounts to find the correct answer.
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b. $140,00 in checkable-deposit liabilities and $46,000 in reserves
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