Answer to Question #107984 in Macroeconomics for sarai

Question

r is 9 percent, RR are $10 million, and (total) reserves (R) are $50 million.
What do excess reserves (ER) equal? What do DD equal?

Answer 1

You can calculate a bank's excess reserves, if any, by using the following formula:

$EX = LR-RR$

Where:

EX - excess reserves 

LR - legal reserves 

RR - required reserves

$ER=50-10=40$

$10=0.09 * DD$

Where 0.09=9%

$DD=10/0.09=111.11$

DD = 111.11 million $

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