If on receiving a $300 deposit, the banks excess reserves increase by $255, the current reserve requirement must be:

BANKING GENERAL KNOWLEDGE

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

A	15%
B	10%
C	5%
D	12%

Explanation:

Detailed explanation-1: -Answer and Explanation: The money multiplier is 1/0.15=6.6667. The total effect of a $40 billion increase in reserves on checkable deposits is the size of the increase multiplied by the money multiplier which is $40*6.6667=$267 billion.

Detailed explanation-2: -Excess Reserves = Total Reserves-Required Reserves For example, suppose a bank has $20 million in deposits. If its reserve ratio is 10%, then it’s required to keep at least $2 million on hand. However, if the bank has $3 million in reserves, then $1 million of it is in excess reserves.

Detailed explanation-3: -the excess reserves of member banks are reduced. Refer to the given balance sheets. If the reserve ratio is 25 percent, commercial banks have excess reserves of: $12.

There is 1 question to complete.