Answer to Question #235939 in Macroeconomics for Priest

Question

Suppose that the public hold no currency. Total reserves = R10 billion, demand deposits = R50 billion, 

and the required -reserve ratio is 10 percent. How large are the commercial bank’s excess reserves?

A. R 1 billion.

B. R 5 billion.

C. R 40 billion.

D. R 55 billion.

Answer 1

B. R 5 billion.

10% of the deposits (R50 billion) = R5 billion

Total reserves = R10 billion

thus, Total reserves -Required Reserves = bank’s excess reserves

R10 billion - R5 billion = R5 billion