So you walk into the bank and you open the vault and count the money. You see $4

Question

So you walk into the bank and you open the vault and count the money. You see $40,000. The reserve ratio is 8%. What is the amount in total checkable deposits that this bank should not exceed? The next day you walk into the bank and count $38,000 in the vault. The reserve ratio is still 8% since the Fed rarely changes the ratio. You then proceed to walk over to the books and see that there are $450,000 in outstanding checkable deposits. By how much more can they expand in checkable deposits? How much in excess reserves do they have? Include in your discussion how you got your answer.

Explanation / Answer

reserve ratio= 0.08 = $40000

total checkable deposit should be = 40000/ 0.08= 500000

next day reserve = 38000 with reserve ratio =0.08

so total checkable deposit can be 38000/ 0.08= 475000

but bank has 450000. so it can expand by 25000 more

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