The Table shows a bank's balance sheet. The bank has no excess reserves and there is no currency...
Question:
The Table shows a bank's balance sheet. The bank has no excess reserves and there is no currency drain. Suppose the bank sells $5 million of government securities to the central bank in an open market operation.
| Reserves at the Fed | 35 |
| Cash in vault | 5 |
| Securities | 45 |
| Loans | 95 |
| Checkable deposits | 100 |
| Savings Deposits | 80 |
As soon as the sale happens, the bank can create $ _____ million of new money.
The bank's actual reserve ratio is _____?
The total quantity of new money created when the bank has no excess reserves is $ _____ million?
Definition of reserve ratio.
The reserve ratio is part of reservable liabilities that banks must hold onto but cannot lend or invest. It is also called the cash reserve ratio. Reserve ratio is a requirement by the central bank. In the United States, it is referred to as federal reserve.
Answer and Explanation: 1
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View this answerBank's reserve ratio = (Reserves at Fed + Cash in vault) / (Checkable deposits + Savings deposit)
= (35 + 5) / (100 + 80) = 40 / 180 = 0.2222...
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Required Reserve Ratio | Definition, Formula & Examples
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Chapter 54 / Lesson 3
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Learn the reserve requirement definition, the reserve ratio formula, and how to calculate required reserves. See reserve ratio examples and understand its importance.
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