Assume the banking system has no excess reserves, but the desired reserve is 20 percent.Suppose the Bank of Canada purchases $10,000 in Canadian government securities from the Academy National Bank.What is the ultimate potential increase in the money supply?

Question

Quizplus · Accepted Answer

The ultimate potential increase in the money supply is determined by the money multiplier, which is the reciprocal of the reserve ratio. With a 20% reserve ratio, the money multiplier is 1/0.20 = 5. Therefore, a $10,000 increase in reserves can potentially increase the money supply by 5 * $10,000 = $50,000.

Assume the Banking System Has No Excess Reserves, but the Desired