Assume that the Federal Reserve injects $6 billion into the financial system. If the reserve requirement is 12%, what is the maximum increase in money supply (in billions)that may result?

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Quizplus · Accepted Answer

The maximum increase in money supply can be calculated using the money multiplier formula, which is 1 / reserve requirement ratio. With a reserve requirement of 12%, the multiplier is 1 / 0.12 = 8.33. Multiplying this by the initial injection of $6 billion gives a maximum increase in money supply of $50 billion.

Assume That the Federal Reserve Injects $6 Billion into the Financial