If the reserve ratio is 20% then the amount that a bank would keep in reserves after accepting the demand deposits is $2,000.
How much would the bank keep?
The reserve ratio refers to the percentage of deposits that banks have to keep as reserves in the Fed.
If this rate is 20%, the bank would therefore have to keep:
= 10,000 x 20%
= $2,000
In conclusion, the bank would keep $2,000.
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