Suppose a commercial banking system has $100,000 of outstanding checkable deposits and actual reserves of $35,000.If the reserve ratio is 20 percent, the banking system can expand the supply of money by the maximum amount of
A)$122,000.
B)$175,000.
C)$300,000.
D)$75,000.

Question

Quizplus · Accepted Answer

The reserve requirement is 20%, so required reserves are $20,000 (20% of $100,000). With actual reserves of $35,000, excess reserves are $15,000. The money multiplier is 1/0.2 = 5. Therefore, the maximum money supply expansion is $15,000 * 5 = $75,000.

Suppose a Commercial Banking System Has $100,000 of Outstanding Checkable