Suppose that Third National Bank has reserves of 20000 and c

Suppose that Third National Bank has reserves of $20,000 and checkable deposits of $200,000. The reserve ratio is 10 percent. The bank sells $5,000 in securities to the Federal Reserve Bank in its district, receiving a $5,000 increase in reserves in return.

Instructions: Enter your answer as a whole number.

What level of excess reserves does the bank now have?

Thx

Solution

Solution:-

Checkable deposits is$200,000.

10 % of 200,000 =20,000,

New bank reserve is $25,000.

Excess reserve is = 25,000 - 20,000 =5,000

Please note that Demand deposit on liability side does not change hence, 5000 has not been added