After this process has worked its way through the banking system,the initial excess reserves in bank A will have led to an additional increase in the money supply of
A) $8,750.
B) $10,000.
C) $17,500.
D) $70,000.
E) $80,000.

Question

Quizplus · Accepted Answer

The money multiplier effect causes the initial excess reserves to increase the money supply. Assuming a reserve requirement of 10%, the initial deposit of $7,000 leads to a total increase of $70,000 in the money supply.

After This Process Has Worked Its Way Through the Banking