Hedge against falling short of reserves


Problem: If banks are required to hold 20% of all deposits as reserve, and an additional 5% is retained as a hedge against falling short of reserves, then a $300,000 increase in deposits will result in:

A) a $1.5 million increase in deposits.

B) a $1.2 million increase in deposits.

C) a $900,000 increase in deposits.

D) a $120,000 increase in deposits.

E) a $60,000 increase in deposits

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Macroeconomics: Hedge against falling short of reserves
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