If the reserve requirement is 20 percent, and banks keep no excess reserves, an increase in an initial inflow of $100 into the banking system will cause an increase in the money supply of:

Question

Quizplus · Accepted Answer

With a reserve requirement of 20%, each dollar deposited can support $5 in loans because the multiplier is 1 / reserve requirement, which is 1 / 0.20 = 5. Therefore, an initial inflow of $100 can increase the money supply by $100 * 5 = $500.

If the Reserve Requirement Is 20 Percent, and Banks Keep