ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The actual reserves of a commercial bank equal its excess reserves minus its required reserves. A bank’s liabilities plus its net worth equal its assets. When borrowers repay bank loans, the supply of money increases. A single commercial bank can safely lend a multiple amount of its excess reserves.

Detailed explanation-2: -Excess reserves refer to the cash held by a bank or other financial institution above the reserve requirement that an authority sets. The amount of excess reserves is equal to the total reserves reduced by the required reserves.

Detailed explanation-3: -total reserves minus required reserves. Total reserves are the portion of bank deposits that are set aside and banks do not lend out. The required reserves are the portion of bank deposits that banks are required to keep on reserves. Excess reserves are any excess of those required reserves.

Detailed explanation-4: -Required Reserves = RR x Liabilities. Excess Reserves = Total Reserves-Required Reserves. Change in Money Supply = initial Excess Reserves x Money Multiplier. Money Multiplier = 1 / RR.