If the reserve requirement is 10 percent, and banks keep no excess reserves, an increase in an initial $300 into the banking system will cause an increase in total money of:

Question

Quizplus · Accepted Answer

The money multiplier formula is 1/reserve requirement. With a 10 percent reserve requirement, the multiplier is 1/0.10 = 10. Therefore, an initial increase of $300 in the banking system can potentially increase the total money supply by $300 * 10 = $3,000.

If the Reserve Requirement Is 10 Percent, and Banks Keep