Total banking system reserves equal $58.65 billion. The total banking system checkable deposits subject to reserve requirements are $510 billion. The required reserves are $51 billion. What is the required reserve rate, and what is the excess reserve rate?

Question

What will be an ideal response?

Answer 1

Given the required reserves equal $51 billion and there are $510 billion in deposits; we can use the formula: rD =  where D = deposits and RR equals required reserves, and rD = the required reserve rate. Substituting in the amounts we find rD = 0.1 or ten percent. We can take the same approach to solving for the excess reserve if we first take the total amount of reserves which we will call R and realizing that R = RR + ER where ER is the amount in excess reserves. In this case, ER = R - RR or $7.65 billion. Now if we let rE represent the excess reserve rate, we can solve for it using the following equation: rE =  and substituting in the actual values, we find that rE = 0.015 or 1.5 percent.