Suppose a banking system has a required reserve ratio of 0.10.How much can the money supply increase in response to a $500 increase in excess reserves for the whole banking system?

Question

Quizplus · Accepted Answer

The formula to calculate the potential increase in the money supply is excess reserves divided by the required reserve ratio. In this case, the excess reserves are $500 and the required reserve ratio is 0.10. Therefore, the potential increase in the money supply is $5,000 (500/0.10). So, the correct answer is C.

Suppose a Banking System Has a Required Reserve Ratio of 0.10.How