A bank has no excess reserves and a required reserve ratio of 20 percent. If $10,000 in cash is withdrawn from the bank, it has a reserve deficiency ofChoose one answer a.$10,000 b.$8,000 c.$1,000...

A bank has no excess reserves and a required reserve ratio of 20 percent. If $10,000 in cash is withdrawn from the bank, it has a reserve deficiency of

Choose one answer
a.$10,000
b.$8,000
c.$1,000
d.$80,000

Asked on by mahdi12

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justaguide | College Teacher | (Level 2) Distinguished Educator

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The required reserve ratio of the bank is 20%. This implies that the bank has to maintain in the form of cash, or highly liquid government securities an amount with it equal to 20% of the amount that has been lent by the bank to its borrowers. This is done to ensure that the bank has sufficient reserves to be able to honor depositors' requests to withdraw funds.

As the bank in the question does not have any excess reserves and the reserve requirement is 20%, when $10000 in cash is withdrawn from the bank, it has a reserve deficiency of $10000. The correct answer is option A.

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