Suppose that from a new checkable deposit, First National Bank holds eight million dollars on deposit with the Federal Reserve, one million dollars in required reserves, and faces a required reserve ratio of ten percent

Finance Jan 22, 2021

Suppose that from a new checkable deposit, First National Bank holds eight million dollars on deposit with the Federal Reserve, one million dollars in required reserves, and faces a required reserve ratio of ten percent. Given this information, we can say First National Bank has million dollars in excess reserves. A) two B) eight C) nine D) ten

Expert Solution

Solution

We are provided with the following information

Required Reserve Ratio = 10 % = 0.1

Required Reserves = 1 million dollars

Total Reserves = Required Reserves/Reserve Ratio

= 1 / 0.1

= 10 million dollars

Excess Reserves = Total Reserves - Required Reserves

= 10 - 1

= 9 million dollars

Hence , the correct answer is option (c) 9 million dollars.

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