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18 June, 19:46

Use the following example to answer the following questions: Imagine that Stella deposits $25,000 in currency (which she had been storing in her closet) into her checking account at the bank. Assume that thisinstitution has a required reserve ratio of 25 percent. As a result of this deposit, by how much will the bank's excess reserves increase?

A) $31,250

B) $100,000

C) $25,000

D) $18,750

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Answers (1)
  1. 18 June, 20:33
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    Excess reserves = $18750

    so correct option is D) $18,750

    Explanation:

    given data

    Stella deposits = $25,000

    reserve ratio = 25 percent

    to find out

    how much will the bank's excess reserves increase

    solution

    we get here first required reserves that is express as

    required reserves = deposits * reserve ratio ... 1

    put here value we get

    required reserves = $25000 * 25%

    required reserves = $25000 * 0.25

    required reserves = $6250

    and

    excess reserve will be here as

    Excess reserves = deposits - required reserves ... 2

    put here value

    Excess reserves = $25000 - $6250

    Excess reserves = $18750

    so correct option is D) $18,750
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