Table 16-7
Metropolis National Bank is currently holding 2% of its deposits as excess reserves.
-Refer to Balance Sheet of Metropolis National Bank. Metropolis National Bank is currently holding 2% of deposits as excess reserves. Assume that no banks in the economy want to hold excess reserves and that people only hold deposits and no currency. How much does the money supply ultimately increase when Metropolis National Bank lends out its excess reserves?

Question

Table 16-7
Metropolis National Bank is currently holding 2% of its deposits as excess reserves. 
-Refer to Balance Sheet of Metropolis National Bank. Metropolis National Bank is currently holding 2% of deposits as excess reserves. Assume that no banks in the economy want to hold excess reserves and that people only hold deposits and no currency. How much does the money supply ultimately increase when Metropolis National Bank lends out its excess reserves?

Quizplus · Accepted Answer

The money supply increases by the amount of the excess reserves that are lent out, which is $100,000.

Table 16-7 Metropolis National Bank Is Currently Holding 2% of Its Deposits