Question

Suppose that Serendipity Bank has excess reserves of $8,000andcheckabledepositsof$150,000. If the reserve ratio is 20 percent, how much does the bank hold in actual reserves?

Short answer

The actual reserves of Serendipity Bank would be $38,000.

Step-by-step solution

Money multiplier and the required ratio

Actual reserve = required reserve + excess reserves.

The excess reserve is $8000 (as given in the question). Calculate the required reserve; the required reserves equal to a ratio of checkable deposits:$150000\times \frac{20}{100}=30000$

Therefore, the required reserve is $30,000. Now, put this in the above-highlighted equation to find actual reserves:

Actual reserves = 30000+8000

= 38,000

Therefore, the size of actual reserve ratio is $38,000.