total deposits held by commercial banks is $80 million and banks hold no excess reserves. How...
total deposits held by commercial banks is $80 million and banks hold no excess reserves. How much excess reserves increase/decreases if the Fed changes reserve requirements from 8% to 6% and the total deposits held by commercial banks stays the same? Why?
Homework Answers
Current Reserves = Deposits*Reserve Requirement
= 80 million*8% = $6.4 million
After change = 80 million*6% = 4.8 million
Hence, excess reserves = 6.4 million - 4.8 million = $1.6 million
Hence, excess reserves will increase by $1.6 million since reserve requirement has decreased and the Bank is maintaining same reserves
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