Suppose the required reserve ratio is 3 percent, and currency and reserves total $10 million. The maximum change in the money supply that can be supported is:
A) $13 million.
B) $30 million.
C) $97 million.
D) $333.3 million.

Question

Quizplus · Accepted Answer

The maximum change in the money supply is determined by the money multiplier formula, which is 1/required reserve ratio. With a 3 percent reserve ratio, the multiplier is 1/0.03 = 33.33. Therefore, the maximum change in the money supply is $10 million * 33.33 = $333.3 million.

Suppose the Required Reserve Ratio Is 3 Percent, and Currency