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A bank has excess reserves of $1,000 and demand deposit liabilities of $80,000 when the reserve requirement is 25 percent.
If the reserve requirement is lowered to 20 percent, the bank's excess reserves will be ____.

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hyderali230

Answer:

Excess reserves will be $5,000

Explanation:

Demand deposit Liability = $80,000

Reserve requirement = 25%

Reserve required value = $80,000 x 25% = $20,000

Excess reserve = Actual reserve - Require reserve

$1,000 = Actual reserve - $20,000

Actual reserve =$1,000 + $20,000

Actual reserve = $21,000

After 20% or reserve requirement

Reserve required value = $80,000 x 20% = $16,000

Excess reserve = Actual reserve - Require reserve

Excess reserve = $21,000 - $16,000

Excess reserve = $5,000

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