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. Suppose the required reserve ratio is 10 percent. Assume that the banking system has $20 million in deposits and $5 million in reserves. Find the required reserves, excess reserves, and the maximum amount by which demand deposits could expand. (The capital A in this problem stands for the delta triangle symbol)

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Answer: Required reserve=$2m

Excess reserve=$3m

Maximum by which deposit can expand is extra $30m or total of $50m

Explanation:

Reserve is the amount of money stipulated to be kept in central or reserve Bank by commercial banks ,as sort of guarantee deposit,this reserve can be used for monetary policies like controlling the amount of money in circulation

Reserve amount=10%of 20m=2m

Excess =actual reserve-stipulated reserve=5-2=$3m

Maximum demand deposit =5×10=$50m

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