If all the banks in the banking system collectively have $20 million in cash reserves, and have a target reserve ratio of 5 percent, the maximum amount of deposits the banking system can support is

Question

Quizplus · Accepted Answer

The reserve ratio is the fraction of deposits that banks must hold as reserves. With a 5% reserve ratio and $20 million in reserves, the maximum deposits supported is $20 million / 0.05 = $400 million.

If All the Banks in the Banking System Collectively Have