Suppose that the reserve requirement is 10 percent and Bob writes a check to you for $100. If you deposit the check to your checking account, then:

Question

Quizplus · Accepted Answer

When you deposit the $100 check to your checking account, your bank will keep $10 (10% reserve requirement) and lend out $90, which will eventually be deposited into another bank. This process can continue, but it does not necessarily lead to an increase in the money supply since each time a portion of the deposit is held in reserves. Therefore, the money supply will not change.

Suppose That the Reserve Requirement Is 10 Percent and Bob