On a certain date,the banking system had $2 billion in excess reserves.The desired reserve ratio was 12.5 percent.If these funds were fully loaned out,how much could the banking system as a whole potentially increase the money supply by?

Question

Quizplus · Accepted Answer

The money multiplier is 1/0.125 = 8. With $2 billion in excess reserves, the potential increase in the money supply is $2 billion * 8 = $16 billion.

On a Certain Date,the Banking System Had $2 Billion in Excess