Assume that the required reserve ratio is 20%. What is the maximum increase in money supply for the banking system as a whole following a $10,000 increase in excess reserves?
A) $5,000
B) $10,000
C) $40,000
D) $50,000

Question

Quizplus · Accepted Answer

The money multiplier is 1/0.20 = 5. Therefore, the maximum increase in money supply is 5 times the increase in excess reserves: $10,000 * 5 = $50,000.

Assume That the Required Reserve Ratio Is 20