Question at position 10 Suppose that from a new checkable deposit, First National Bank holds 2 million dollars in vault cash, 1 million dollars in required reserves, and faces a required reserve ratio of 10%. Given this information, we can say First National Bank has ________ million dollars on deposit with the Federal Reserve. twotennone of the other optionseightone单项选择题
A
two
B
ten
C
none of the other options
D
eight
E
one

Question

Question at position 10 Suppose that from a new checkable deposit, First National Bank holds 2 million dollars in vault cash, 1 million dollars in required reserves, and faces a required reserve ratio of 10%. Given this information, we can say First National Bank has ________ million dollars on deposit with the Federal Reserve. twotennone of the other optionseightone单项选择题

A

two

B

ten

C

none of the other options

D

eight

E

one

BlackTom AI · Accepted Answer

Required reserves = reserve ratio × checkable deposits, so checkable deposits = required reserves / reserve ratio.

1) Relevant concepts
- Required reserve ratio: fraction of checkable deposits banks must hold as reserves.  
- Reserves = vault cash + deposits at the Federal Reserve.  
- Required reserves are part of total reserves; any reserves above required are excess reserves.  
- A bank can meet required reserves using vault cash, Fed deposits, or both. The deposit at the Fed cannot be negative.

2) Step-by-step reasoning and calculations
- Given required reserves = $1 million and reserve ratio = 10% (0.10).  
- Compute checkable deposits: deposits = required reserves / ratio = $1,000,000 / 0.10 = $10,000,000 (10 million).  
- Total reserves minimally needed = required reserves = $1 million. Actual reserves held = vault cash + deposit at Fed. Vault cash = $2 million. Let D_F be the deposit at the Fed. Then actual reserves = 2M + D_F.
- Because the bank already holds vault cash of $2M, which exceeds the required reserves of $1M, the bank need not hold any funds on deposit at the Federal Reserve to meet the requirement. If the bank holds exactly the minimum required total reserves, then 2M + D_F = 1M implies D_F = 1M − 2M = −1M, which is impossible. The correct interpretation is that vault cash covers the $1M required reserve and leaves $1M as excess reserves, so deposit at the Fed can be $0.

3) Intermediate steps shown
- deposits = 1,000,000 / 0.10 = 10,000,000.  
- required reserves (1M) − vault cash (2M) = −1M → not feasible, therefore Fed deposit = 0 (vault cash already covers requirement and provides excess).

4) Why the correct answer is correct
- The question asks specifically for the amount on deposit with the Federal Reserve. Given vault cash alone already exceeds the required reserves, the bank can have zero on deposit at the Fed. Zero is not one of the numeric choices provided.

5) Why other options are incorrect
- "Ten": $10M is the total checkable deposits, not the deposit at the Fed.  
- "Two": $2M is vault cash, not Fed deposit.  
- "One": $1M is the required reserve amount, not necessarily the Fed deposit; vault cash already covers it.  
- "Eight": $8M would be the result of (total deposits $10M − vault cash $2M) if someone mistakenly treated vault cash as part of customer deposits; that calculation is invalid for Fed deposit. None of these correctly give the Fed deposit amount (which is 0).

6) Conclusion
- Therefore the correct multiple-choice selection is "none of the other options," which matches the provided answer.

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