If the reserve ratio is 100 per cent, depositing $500 of paper money in a bank will increase the money supply by:
A)$500
B)$0
C)$5000
D)$500 000

Question

Quizplus · Accepted Answer

A 100% reserve ratio means that banks are required to hold onto all deposits as reserves and cannot lend out any money. Therefore, depositing $500 of paper money in a bank will not increase the money supply at all.

If the Reserve Ratio Is 100 Per Cent, Depositing $500