Table 29-4

-Refer to Table 29-4.Assume that all other banks hold only the required 5 percent of deposits as reserves and that people hold only deposits and no currency.If the Bank of Tampa decides to hold exactly 5% reserves,by how much would the economy's money supply increase?
A)$500
B)$1,000
C)$1,500
D)$2,000

Question

Table 29-4
 
-Refer to Table 29-4.Assume that all other banks hold only the required 5 percent of deposits as reserves and that people hold only deposits and no currency.If the Bank of Tampa decides to hold exactly 5% reserves,by how much would the economy's money supply increase?
A)$500 
B)$1,000 
C)$1,500 
D)$2,000

Quizplus · Accepted Answer

The money supply would increase by $1,000 because the Bank of Tampa would release $1,000 in reserves, which would be deposited in other banks. These banks would then lend out 95% of these deposits, creating an additional $950 in deposits. This process would continue until the total increase in deposits was $1,000.

Table 29-4 -Refer to Table 29-4.Assume That All Other Banks Hold Only