The following is a consolidated balance sheet of commercial banks in a hypotheti

Question

The following is a consolidated balance sheet of commercial banks in a hypothetical country. Total bank reserves equal excess reserves plus required reserves. The legal reserve requirement is 25%. Assets Liabilities Excess Reserves $500 Deposits $6,000 Required Reserves $1,500 Loans $4,000 Total $6,000 Total $6,000 4.1. Commercial banks in this hypothetical country hold ____. A. Fewer bank reserves than the reserve requirement B. More bank reserves than the reserve requirement C. Just enough bank reserves to meet the reserve requirement

Explanation / Answer

excess reserves=total bank reserves-desired bank reserves so plug in the things you already know. 500= total bank reserves-1500 so total bank reserves = 2000 money supply= currency held by public +(bank reserves/desired reserve ratio) money supply=1000+(2000/25%) money supply=1000+8000=9,000

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