How much can the banking system increase deposits, given a required reserve ratio of 100 percent, an initial injection of $1,000 worth of reserves, and no excess reserve or currency drain?

Question

Quizplus · Accepted Answer

With a required reserve ratio of 100 percent, banks are required to hold all deposits as reserves. Therefore, no excess reserves are created, and the initial injection of $1,000 in reserves would result in only a $1,000 increase in deposits. The other answer choices are incorrect because they assume a lower reserve ratio or the presence of excess reserves or currency drain.

How Much Can the Banking System Increase Deposits, Given a Required