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What level of excess reserves does the bank now have

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Reference no: EM132482849

Suppose again that the Bank of Manitoba has cash reserves of $20,000 and deposits of $100,000. The desired reserve ratio is 20 percent. The bank now sells $5,000 in securities to the Bank of Canada, receiving a $5,000 increase in its deposit there in return.

a. What level of excess reserves does the bank now have?

b. Why does your answer differ from the situation where a household deposits $5,000 of currency into the bank?

Reference no: EM132482849

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