If an increase of $10 million in excess reserves increases checkable deposits in the banking system by a maximum of $200 million,the required reserve ratio is:

Question

Quizplus · Accepted Answer

The required reserve ratio can be calculated using the money multiplier formula, which is 1/required reserve ratio. Given that a $10 million increase in excess reserves leads to a $200 million increase in checkable deposits, the multiplier is 200/10 = 20. Therefore, the required reserve ratio is 1/20 = 0.05 or 5 percent.

If an Increase of $10 Million in Excess Reserves Increases