Suppose the banking system currently has 333 billion in rese

Suppose the banking system currently has $333 billion in reserves, the reserve requirement is 10%, and $3 billion of the reserves are excess reserves that will not be lent out. What is the value of deposits?

A) $2,970 billion

B) $3,300 billion

C) $2,673 billion

D) $2,700 billion

Solution

Let value of deposits = D

Total reserves for consideration = $(333 - 3) billion = $330 billion

Value of deposits x Required Reserve ratio = $330 billion x (1 - Required reserves ratio)

D x 0.1 = $330 billion x 0.9

D = $330 billion x 0.9 / 0.1 = $2,970 billion

Correct option (A)