Magog banks currently have 1 million dinars and a system of 100% reserve banking.The government passes a law allowing fractional reserve banking and a minimum reserve-deposit ratio of 10%.Assuming people hold no currency,after the full process of multiple expansion of loans and deposits had worked itself out,the nation's money supply would equal

Question

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With a 10% reserve requirement, banks can lend out 90% of deposits. This leads to a money multiplier of 1/0.10 = 10. Therefore, the money supply can expand to 10 times the original reserves, resulting in 10,000,000 dinars.

Magog Banks Currently Have 1 Million Dinars and a System