Assume that the following data describe the condition of the banking system: Total reserves $100 billion Transactions deposits $800 billion Cash held by public $400 billion Reserve requirement 0.10 Suppose the Fed wanted to stop further lending activity. To do this, what reserve requirement should the Fed impose?

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Business

Luke Golden

17 December, 18:48

Assume that the following data describe the condition of the banking system: Total reserves $100 billion Transactions deposits $800 billion Cash held by public $400 billion Reserve requirement 0.10 Suppose the Fed wanted to stop further lending activity. To do this, what reserve requirement should the Fed impose?

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Answers (1)

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Alani Allison · Answer 1

12.5%

Explanation:

The computation of the reserve requirement is shown below:

We know that

Total reserves = New reserve requirement * transaction deposits

$100 billion = New reserve requirement * $800 billion

So, the New reserve requirement would be

= $100 billion : $800 billion

= 0.125 or 12.5%

All other information which is given is not relevant. Hence, ignored it