Suppose a banking system has a required reserve ratio of 10 percent.What is the maximum possible increase in the money supply in response to a $2 billion increase in excess reserves for the whole banking system?

Question

Quizplus · Accepted Answer

The money multiplier is the reciprocal of the reserve ratio, which is 1/0.10 = 10. Therefore, the maximum increase in the money supply is 10 times the increase in excess reserves: $2 billion * 10 = $20 billion.

Suppose a Banking System Has a Required Reserve Ratio of 10