A bank's assets consist of $1,000,000 in total reserves, $2,100,000 in loans, and a building worth $1,200,000. Its liabilities and capital consist of $3,000,000 in demand deposits and $1,300,000 in capital. Refer to Exhibit 17-2. If the bank is required to keep reserves equal to one-third of deposits, what is the level of the bank's excess reserves? How much could it loan out as a result?

a. $700,000; $2,100,000

b. $300,000; $900,000

c. zero; zero

d. $300,000; $300,000

Option (c) zero; zero

Explanation:

Data provided in the question:

Bank's assets in total reserve = $1,000,000

Loans = $2,100,000

Building worth = $1,200,000

Demand deposits = $3,000,000

Capital = $1,300,000

Required reserves = one-third of deposits

Now,

Required reserves = one-third of $3,000,000

or

Required reserves = $3,000,000 : 3

= $1,000,000

Thus, excess reserves = Total reserve - Required reserves

= $1,000,000 - $1,000,000

= $0 i. e zero

also,

Amount bank could loan = Amount of excess reserve

= zero

Hence,

Option (c) zero; zero