Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and nine million dollars in excess reserves. Given this information, we can say First National Bank has ________ million dollars in required reserves.

Question

BlackTom AI · Accepted Answer

We start by restating the given financial positions: vault cash = 2 million, reserves at the Federal Reserve = 8 million, and excess reserves = 9 million.

To find required reserves, we use the relationship: total reserves = vault cash + reserves at the Fed = 2 + 8 = 10 million. 
Excess reserves are the portion of reserves above the required minimum, so required reserves = total reserves − excess reserves = 10 − 9 = 1 million.

Option by option analysis:
- Option 'one': This matches the calculation above, giving 1 million as the required reserves. It aligns with the idea that excess reserves consume part of total reserves, leaving a smaller base as required reserves. 
- Option 'two': If the required reserves were 2 million, then total reserves minus excess reserves would have to equal 2, implying excess reserves = 10 − 2 = 8 million. But the given excess reserves are 9 million, not 8, so this is inconsistent. 
- Option 'eight': Claiming 8 million would imply a much larger portion of reserves is required, which contradicts the actual excess reserves of 9 million and the total of 10 million reserves available. 
- Option 'ten': Suggesting 10 million as required reserves would require excess reserves to be 0 (since total reserves are 10), but the data show excess reserves are 9, so this option doesn't fit the numbers.

In summary, only the first option coherently matches the arithmetic derived from total reserves and excess reserves; the other options conflict with the given figures.

ECON 161A LEC A: MONEY... Homework 3 MCQ

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