If reserves increase by $12 billion,what is the difference in the resulting change in checkable deposits when the required reserve ratio is 10 percent compared to when it is 8 percent?
A) $15 billion
B) $30 billion
C) $2.4 billion
D) $24 billion

Question

Quizplus · Accepted Answer

If reserves increase by $12 billion, the change in checkable deposits can be calculated using the money multiplier formula:

Change in Checkable Deposits = (Change in Reserves) / (Required Reserve Ratio)

When the required reserve ratio is 10 percent:

Change in Checkable Deposits = $12 billion / (10% or 0.1) = $120 billion

When the required reserve ratio is 8 percent:

Change in Checkable Deposits = $12 billion / (8% or 0.08) = $150 billion

The difference between $150 billion and $120 billion is $30 billion, which is the answer B.

If Reserves Increase by $12 Billion,what Is the Difference in the Resulting