-In Table 13-1, if the required reserve ratio is 10 percent, what will happen to the money supply?
Use the oversimplified money multiplier in your calculations.
A)The money supply will decrease by $100 million.
B)The money supply will decrease by $10 million.
C)The money supply will not change.
D)The money supply will increase by $10 million.
E)The money supply will increase by $100 million.

Question

-In Table 13-1, if the required reserve ratio is 10 percent, what will happen to the money supply?
Use the oversimplified money multiplier in your calculations.
A)The money supply will decrease by $100 million. 
B)The money supply will decrease by $10 million. 
C)The money supply will not change. 
D)The money supply will increase by $10 million. 
E)The money supply will increase by $100 million.

Quizplus · Accepted Answer

The oversimplified money multiplier is calculated as 1 divided by the reserve ratio. With a 10% reserve ratio, the multiplier is 10. Therefore, an initial increase in reserves of $10 million can increase the money supply by $100 million (10 times the initial amount).

-In Table 13-1, If the Required Reserve Ratio Is 10