# The Norfolk Bank has $18,000 in excess reservces and the reserve ratio is 20 percent. Which level of checkable deposits and reserves might this bank hold?

a. $160,000 in checkable-deposit liabilities and $47,000 in reserves.

b. $140,00 in checkable-deposit liabilities and $46,000 in reserves

c. $120,000 in cehckable-deposit liabilities and $32,000 in reserves

d. $100,000 in checkable-deposit liabilites and $30,000 in reserves

Use algebra. Total reserves are required reserves plus excess reserves.

Required reserves are .2*liabilities, and your are given excess reserves. So, simply multiply the reserve requirement ratio to each of the liability amounts to find the correct answer.

## b. $140,00 in checkable-deposit liabilities and $46,000 in reserves

## Let's solve this step by step:

Step 1: Calculate the required reserves using the reserve ratio.

Required reserves = Reserve ratio * Checkable-deposit liabilities

Step 2: Calculate the total reserves by adding the excess reserves to the required reserves.

Total reserves = Required reserves + Excess reserves

Now let's calculate the total reserves for each option:

a. Total reserves = (0.2 * $160,000) + $18,000

= $32,000 + $18,000

= $50,000

b. Total reserves = (0.2 * $140,000) + $18,000

= $28,000 + $18,000

= $46,000

c. Total reserves = (0.2 * $120,000) + $18,000

= $24,000 + $18,000

= $42,000

d. Total reserves = (0.2 * $100,000) + $18,000

= $20,000 + $18,000

= $38,000

Among the given options, the correct answer is:

c. $120,000 in checkable-deposit liabilities and $32,000 in reserves

## To solve this problem using algebra, we need to use the given reserve ratio and excess reserves. Let's go through each option to see which one satisfies the given conditions.

Option a: $160,000 in checkable-deposit liabilities and $47,000 in reserves.

Using the formula for required reserves, we can calculate the required reserves for this option:

Required reserves = 0.20 * $160,000 = $32,000

Since the excess reserves are given as $18,000, the total reserves would be:

Total reserves = Required reserves + Excess reserves = $32,000 + $18,000 = $50,000

However, this does not match the $47,000 in reserves given.

Option b: $140,000 in checkable-deposit liabilities and $46,000 in reserves.

Using the same calculations:

Required reserves = 0.20 * $140,000 = $28,000

Total reserves = $28,000 + $18,000 = $46,000

This matches the $46,000 in reserves given, so let's check the liabilities next.

Option c: $120,000 in checkable-deposit liabilities and $32,000 in reserves.

Required reserves = 0.20 * $120,000 = $24,000

Total reserves = $24,000 + $18,000 = $42,000

This does not match the $32,000 in reserves given.

Option d: $100,000 in checkable-deposit liabilities and $30,000 in reserves.

Required reserves = 0.20 * $100,000 = $20,000

Total reserves = $20,000 + $18,000 = $38,000

This does not match the $30,000 in reserves given.

Therefore, the correct answer is option b: $140,000 in checkable-deposit liabilities and $46,000 in reserves.