How do you calculate the required reserves? how do you find the excess reserves?

Expert Solution

The required reserves refer to the proportion of total money that is deposited by the households on the bank, and the bank has to keep them for any future uncertainties. Required reserves describe the amount of money that central banks want from banks to keep in reserves.

Required reserves can be calculated by multiplying the total reserves with the reserve ratio (that is set by the central bank).

For example: let say, bank has total of $1200 deposits that are deposited by its customers, and central bank determined the reserve ratio to be 8%.

Therefore, the required reserves by the bank would be:

The excess reserves refer to the amount of money reserved by the bank in addition to the required reserves. It is calculated by subtracting the required reserves from the total reserves of a bank.

For example, let say, the required reserves is given as $96 and the bank has the total reserves of $120.

Therefore, the excess reserves of the bank would be:

Rahul Sunny answered 2 years ago

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