If the desired reserve ratio is 10 per cent and there is no currency drain, then a $100 increase in the monetary base leads the banking system to increase the quantity of money by
A) $1,000.
B) $110.
C) $1,100.
D) $400.
E) $900.

Question

Quizplus · Accepted Answer

With a desired reserve ratio of 10%, every dollar of reserves supports $10 of deposits because the money multiplier is 1/reserve ratio = 1/0.10 = 10. Therefore, a $100 increase in the monetary base leads to a $1,000 increase in the quantity of money.

If the Desired Reserve Ratio Is 10 Per Cent and There