Answered: I'm doing economics homework and the…

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter12: Money, Banking And The Financial System

Section: Chapter Questions

Problem 8WNG

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I'm doing economics homework and the question is asking; If a bank has $150 million in deposits and $25 million in reserves with a reserve requirement of 0.15 how much are its required reserves. I thought I was supposed to multiply the reserve requirement with the total deposits, but its telling me my answer is incorrect. What am I doing wrong?

Expert Solution

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The amount of money that a commercial bank must keep in reserve to the amount of money it has on deposit is known as the required reserve ratio. The necessary bank reserves are held in reserve; lending or investment activities are not permitted to spend this money. It can either be deposited with a Federal Reserve bank or kept in the bank's safes.

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