If the desired reserve ratio is 10 percent and reserves in the commercial banking system increase by $10,000,the maximum possible expansion of demand deposits is

Question

Quizplus · Accepted Answer

The maximum possible expansion of demand deposits can be found by using the money multiplier formula, which is 1/reserve ratio. In this case, the reserve ratio is 10%, so the money multiplier is 1/0.1 = 10. Therefore, the maximum possible expansion of demand deposits is 10 times the increase in reserves, which is $10,000, so the answer is $100,000 (choice C).

If the Desired Reserve Ratio Is 10 Percent and Reserves