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Required and excess reserves Suppose that Third Fidelity Bank currently has $200,000 in demand deposits and $130,000 in outstanding loans. The Federal Reserve has set the reserve requirement at 10%. Third Fidelity Reserves Required Reserves Excess Reserves (Dollars) (Dollars) (Dollars)

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Answer:

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Explanation:

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Answer:

  • Reserves of the third fidelity bank = $70000
  • required reserves by Federal reserve =  $20000
  • Excess reserve = $50000

Explanation:

it should be assumed that The components of the balance sheet would include : The liabilities, The assets and the capital

from the balance sheet

Assets = liabilities + capital

demand deposits = $200000

outstanding loan = $130000

The demand deposits = reserves + outstanding loan

$200000 = reserves + $130000 therefore the reserves would be

demand deposits - outstanding loans = Reserves from third Fidelity bank

$200000 - $130000 = $70000

Reserve required by the federal reserve from third fidelity bank at the set value of 10%

10% of demand deposits from third fidelity bank = 10% * $200000(demand deposits) = $20000

Excess reserves = Reserves - required reserve by the federal reserve bank

                            =  $70000 - $20000

                            = $50000