Question

Suppose that Serendipity Bank has excess cash reserves of $10,000 and demand deposits of $150,000.

If the desired reserve ratio is 10 percent, what is the size of the bank's actual cash reserves?

$ ___

Answer 1

Answer

required reserves =deposits * required reserve ratio

=150000*0.1

=$15000

Actual reserves =required reserves + excess reserves

=15000+10000

=$25000

the actual reserves is $25000.

Answer 2

1. Understand the Terms:

• Demand Deposits: $150,000 (money customers can withdraw anytime).

• Excess Reserves: $10,000 (extra cash the bank holds beyond requirements).

• Desired Reserve Ratio: 10% (the fraction of deposits banks must keep as reserves).

• 
  

2. Calculate Required Reserves:
   The bank must keep 10% of demand deposits as reserves:

   $$\text{Required Reserves}=10\mathrm{\%}\times \mathrm{\$}150,000=\mathrm{\$}15,000.$$

4. Find Actual Reserves:

• Excess Reserves are the extra cash beyond the required amount.

• So, total reserves = Required + Excess:

• 
  

  $$\text{Actual Reserves}=\mathrm{\$}15,000(\text{required})+\mathrm{\$}10,000(\text{excess})=\mathrm{\$}25,000.$$

Answer:

The bank's actual cash reserves are $25,000.