If Bank a Holds $200 in Reserves, Deposits Are $1000

question 559

Multiple Choice

If Bank A holds $200 in reserves, deposits are $1000, and the desired reserve ratio is 15 percent, how much are excess reserves?

• A) zero, because banks never hold excess reserves
• B) $200
• C) $50
• D) $150

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Definitions:

Commercial Paper

An unsecured, short-term debt instrument issued by corporations, typically used for financing immediate needs.

Payment

The transfer of money, goods, or services as compensation or fulfillment of an obligation.

Demand Instrument

A type of draft that allows the payee to demand payment at any time from a holder.

Payee

The individual or entity to whom a payment is to be made or who will receive the payment.