If reserves increase by $50 billion and the required reserve ratio is 8%,what is the resulting change in checkable deposits (or the money supply),assuming that there are no cash leakages and that banks hold zero excess reserves?
A) $40 billion
B) $400 billion
C) $62.5 billion
D) $625 billion

Question

Quizplus · Accepted Answer

The resulting change in checkable deposits can be calculated using the money multiplier formula, which is 1/required reserve ratio. With an 8% reserve ratio, the multiplier is 1/0.08 = 12.5. Therefore, an increase in reserves of $50 billion leads to a change in checkable deposits of $50 billion * 12.5 = $625 billion.

If Reserves Increase by $50 Billion and the Required Reserve