Question

If the total deposits of the banking system are $400 billion, how much money could these reserves support if the required reserve ratio is 0.20 and banks hold no excess reserves?if the total deposits of the banking system are $400 billion, how much money could these reserves support if the required reserve ratio is 0.20 and banks hold no excess reserves?

Answer 1

$2,000 billion.

In order to find the reserve amount, you need to know the amount of total deposits and the required reserve ratio and whether the bank holds any excess reserve. Here, we have $400 billion of total deposits and a required reserve ratio of 0.2. You would divide the total deposits by the required reserve ratio to find the reserve amount.

$400 billion / 0.2 = $2,000 billion