A bank which must hold 100 percent reserves opens in an economy that had no banks and a currency of $100. If customers deposit $50 into the bank, what is the value of the money supply?
A)$50
B)$100
C)$150
D)$200

Question

Quizplus · Accepted Answer

The money supply remains $100 because the bank holds 100% reserves, meaning it cannot lend out any of the deposits. The $50 deposited is still part of the money supply, but it is now in the form of a bank deposit rather than currency in circulation.

A Bank Which Must Hold 100 Percent Reserves Opens in an Economy