Given a required reserve ratio of 0.25,what is the maximum amount by which the money supply can increase in response to a $200 million increase in excess reserves for the whole banking system?

Question

Quizplus · Accepted Answer

The maximum increase in the money supply is determined by the money multiplier, which is the reciprocal of the required reserve ratio. Here, the money multiplier is 1/0.25 = 4. Therefore, a $200 million increase in excess reserves can potentially increase the money supply by 4 * $200 million = $800 million.

Given a Required Reserve Ratio of 0