Let's assume that the banking system receives $10 billion of additional demand deposits. If the system remains in compliance with the 10% reserve requirement, what is the maximum amount by which the banking system could expand the money supply in the United States?
A)$10 billion
B)$50 billion
C)$100 billion
D)$200 billion

Question

Quizplus · Accepted Answer

In this scenario, the maximum amount by which the banking system could expand the money supply in the United States is $100 billion.
Key Takeaway: The $10 billion that the banking system receives consists of new deposits. So with the 10% reserve requirement, the reserve can support $100 billion in new lending, which would increase the bank's checking account deposits by $100 billion, with the money multiplier at 10.

Let's Assume That the Banking System Receives $10 Billion of Additional