Assume that the reserve requirements ratio is 15 percent. An initial injection of $150 million could result in a maximum change in the money supply of
A) $150 million.
B) $1 billion.
C) $1 million.
D) $22.5 million.

Question

Quizplus · Accepted Answer

The maximum change in the money supply is given by the money multiplier formula: 1/rr × initial injection = 1/0.15 × $150 million = $1 billion. Therefore, the correct answer is B.

Assume That the Reserve Requirements Ratio Is 15 Percent