Question

Phil Frugal has been saving his pennies since he was 5 years old. He is now 45 and deposits his savings in a bank. His pennies total $5,000. Using this information and your knowledge of the banking system, select the best match for each item. Then calculate the values of reserves, required reserves, and excess reserves. Assume a required reserve ratio of 10%.

Answer 1

To calculate the values of reserves, required reserves, and excess reserves, while assuming a required reserve ratio of 10%, we have the required reserves to be $500.

This is because based on the assumed reserve ratio and the knowledge of the banking system, the required reserves is calculated as below.

Required Reserves: $5,000 × 0.10= $500.

Also, the calculated amount for the excess is: $4,500.

Where Required Excess: $5,000 - $500 = $4,500

The Reserves: $5,000.

Hence, in this case, it is concluded that the Required is $500, while the Excess is $4,500 and the Reserves is $5,000.

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