Total reserves minus bank deposits with the Fed equals:

Question

BlackTom AI · Accepted Answer

Total reserves equal vault cash plus deposits at the Federal Reserve, so Total reserves − bank deposits with the Fed = vault cash.

1) Relevant concepts
- Total reserves (TR) are the sum of a bank’s vault cash (VC) and its deposits at the Federal Reserve (Dfed): TR = VC + Dfed.  
- Required reserves are the portion of reserves banks must hold (set by the reserve ratio) and can be held either as vault cash or as deposits at the Fed.  
- Excess reserves = TR − required reserves.  
- Currency in circulation refers to money held by the public, not by banks in their vaults.

2) Step-by-step reasoning (algebraic)
Start from the identity:
TR = VC + Dfed
Subtract Dfed from both sides:
TR − Dfed = VC

3) Intermediate steps shown
- Given TR = VC + Dfed
- Compute TR − Dfed
- Result: VC

4) Why the correct answer is correct
The expression "Total reserves minus bank deposits with the Fed" literally removes the Fed-deposit component from total reserves, leaving only the physical cash that banks hold in their vaults. That physical cash is called vault cash, so option c is exactly what remains.

5) Why the other options are incorrect
- a. Required reserves: these are an amount determined by the reserve requirement (a percentage of deposits), not simply TR − Dfed; required reserves can be satisfied by both vault cash and Fed deposits.  
- b. Excess reserves: defined as TR − required reserves, not TR − Dfed, so this expression does not match.  
- d. Currency in circulation: means currency held by the public outside banks; vault cash is held inside banks, so this option is incorrect.

6) Conclusion
By the identity TR = vault cash + deposits at the Fed, TR − deposits at the Fed = vault cash. Therefore the correct answer is c. vault cash.

Total reserves minus bank deposits with the Fed equals:Single choice

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