If there are $5 million in excess reserves in the Canadian banking system and the required reserve ratio is 20 percent,then the most the money supply can increase is

Question

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The excess reserve is $5 million, and the required reserve ratio is 20%, which means that the banks must hold 20% of their deposits as reserves and can lend out the rest. Therefore, the banks can lend out $25 million ($5 million ÷ 0.2) without violating the required reserve ratio. This $25 million increase in loans will create an equal increase in deposits, and hence, the money supply can increase by $25 million.

If There Are $5 Million in Excess Reserves in the Canadian