Question

Assume that the following balance sheet portrays the state of the banking system. The banks currently have no excess reserves. Assets Liabilities and Net Worth (Billions of Dollars) Total reserves 4 Checkable deposits 20 Loans 11 Securities 5 Total 20 Total 20 What is the required reserve ratio

Answer 1

20%

Explanation:

Given

Assets

Total reserves 4

Loans 11

Securities 5

Total 20

Liabilities and Net Worth (Billions of Dollars)

Checkable deposits 20

Total 20

Since the bank has no excess reserves then the entire reserve is required.

Reserve Ratio = Required Reserve /. Checkable Deposits

Required Reserve = Total Reserves = 4

Checkable Deposits = 20

Both in billions

Reserve Ratio = 4/20

Reserve Ratio = 0.2

Reserve Ratio = 20%

Hence,. The required ratio is calculated as 20%