The following is the balance sheet of the whole banking system (all figures are in $billions):

-Refer to the information above to answer this question.Assume that the target reserve ratio is 5 percent.What is the maximum amount by which the commercial banking system can expand the supply of money?

Question

The following is the balance sheet of the whole banking system (all figures are in $billions):
 
-Refer to the information above to answer this question.Assume that the target reserve ratio is 5 percent.What is the maximum amount by which the commercial banking system can expand the supply of money?

Quizplus · Accepted Answer

With a target reserve ratio of 5 percent, every dollar of reserves can support $20 in deposits because 1 / 0.05 = 20. If the banking system can expand the money supply by a maximum of $20 for every $1 of reserves, and assuming the question implies an increase in reserves that allows for this maximum expansion, the correct choice would depend on the initial increase in reserves. Without the specific initial increase in reserves provided in the question, a general approach to determine the maximum expansion involves understanding the money multiplier concept, which is 20 in this case. However, without explicit numbers from the question, we can't calculate the exact maximum amount by which the money supply can expand. Given the options and assuming a typical scenario where the question might imply an initial reserve increase that could support a maximum expansion, none of the provided choices directly correlate with the explanation without knowing the initial reserve increase. Thus, the answer provided here is based on understanding the reserve ratio and its impact on money supply expansion, but please note the explanation is limited by the lack of specific details in the question.

The Following Is the Balance Sheet of the Whole Banking