Suppose that the reserve ratio is .25, ad that a bank has actual reserves of $15,000, loans of $40,000, and demand deposits of $50,000. Excess reserves are $
To calculate the excess reserves, we need to know the reserve ratio. In this case, the reserve ratio is given as 0.25, or 25%.
Excess reserves can be calculated by subtracting required reserves from actual reserves.
To find the required reserves, we multiply the reserve ratio by the bank's total demand deposits.
Required reserves = Reserve ratio * Demand deposits
In this case, the demand deposits are $50,000 and the reserve ratio is 0.25.
Required reserves = 0.25 * $50,000 = $12,500
To calculate the excess reserves, subtract the required reserves from the actual reserves.
Excess reserves = Actual reserves - Required reserves
Given that the actual reserves are $15,000 and the required reserves are $12,500, we can calculate the excess reserves.
Excess reserves = $15,000 - $12,500 = $2,500
Therefore, the excess reserves are $2,500.