If banks faced a 100 percent reserve requirement, a $10,000 reduction in banking reserves would decrease the money supply by:

Question

Quizplus · Accepted Answer

In a 100 percent reserve requirement scenario, banks are required to keep all deposits as reserves and they cannot loan out any excess deposits. Therefore, a decrease in banking reserves of $10,000 would directly decrease the money supply by the same amount. So, the correct answer is (C) $10,000.

If Banks Faced a 100 Percent Reserve Requirement, a $10,000