The Fed changes reserve requirements from 10% to 7%, thereby creating $900 million in excess reserves. The total change in deposits (with no drains) would be
A) $3,000 million
B) $12,857 million
C) $13,652 million
D) $15,795 million

Question

Quizplus · Accepted Answer

The money multiplier is 1/reserve requirement, so with a 7% reserve requirement, the multiplier is 1/0.07 = 14.2857. The total change in deposits is the excess reserves multiplied by the money multiplier: $900 million * 14.2857 = $12,857 million.

The Fed Changes Reserve Requirements from 10% to 7%, Thereby