If banks desired a 100 percent reserve ratio,what would a $10 000 reduction in banking reserves decrease the money supply by?

Question

Quizplus · Accepted Answer

A $10 000 reduction in banking reserves would decrease the money supply by $10 000 because in a 100 percent reserve system, banks must hold reserves equal to 100 percent of deposits, meaning that every dollar deposited into a bank would have to be held in reserve. Therefore, a reduction in reserves would directly lead to a reduction in the amount of money that banks can lend out as loans.

If Banks Desired a 100 Percent Reserve Ratio,what Would a $10