If the reserve requirement is 25%, a new deposit of $1,000 leads to a potential increase in the money supply of:
A) $4,000.
B) $250.
C) $10,000.
D) $5,000.

Name: If the reserve requirement is 25%, a new deposit of $1,000 leads to a potential increase in the money supply of: A) $4,000. B) $250. C) $10,000. D) $5,000.
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Quizplus · Accepted Answer

The money multiplier is 1 divided by the reserve requirement ratio, which is 1/0.25 = 4. Therefore, a $1,000 deposit can potentially increase the money supply by $1,000 x 4 = $4,000.

If the Reserve Requirement Is 25%, a New Deposit of $1,000