Acommercial bank has no excess reserves until a depositor places $2,000 in cash in the bank. the reserve ratio is 10 percent. the bank then lends $1,500 to a borrower. as a consequence of these transactions, the bank's excess reserves are
a. not affected.
b. increased by $200.
c .increased by $300.
d .increased by $500.

Option (C) is correct.

Explanation:

Based on given information, the bank's excess reserves occurs when $2,000 is deposited in the bank as a form of cash.

The reserve ratio = 10%

                             = 0.1

Bank's reserve = Deposit amount × Reserve ratio

                          = $2000 × 0.1

                          = $200

Bank lends to a borrower = $1500

So, bank's excess reserve:

= Deposit amount - Bank's reserve - Bank's lending amount

= $2,000 - $200 - $1,500

= $300

Therefore, as a consequence of these transactions, the bank's excess reserves are increased by $300.

answer; balance sheets;