Suppose that the reserve ratio is 5 percent and that a bank has $1,000 in deposits. Its reserve is



The reserve ratio is the fraction of deposits that a bank must hold in reserve and not lend out. To find the reserve amount, we can use the following formula:

\[ \text{Reserve} = \text{Deposits} \times \text{Reserve Ratio} \]

Given:
- Reserve Ratio = 5% (or 0.05)
- Deposits = $1,000

Now, we can calculate the reserve:

\[ \text{Reserve} = 1,000 \times 0.05 \]
\[ \text{Reserve} = 50 \]

The bank's reserve is $50.

Would you like more details or have any questions?

Here are some related questions you might be interested in:
1. What is the impact of changing the reserve ratio on the money supply?
2. How does the reserve requirement affect a bank's ability to lend?
3. What are the consequences of a bank holding more reserves than required?
4. How do central banks use the reserve ratio to influence the economy?
5. What is the difference between required reserves and excess reserves?

**Tip:** The reserve ratio is a key tool used by central banks to regulate the money supply and ensure the stability of the banking system. Understanding how it works can provide insights into broader economic policies and their impacts.

Learn how to calculate bank reserves using a 5% reserve ratio with a $1,000 deposit. Understand the concept of reserve ratios in banking and their impact on financial stability. Suitable for students in Grades 10-12 and anyone interested in banking economics.

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