If the government requires banks to keep 100 percent of their deposits as reserves, a $1,000 deposit in a checking account would lead to a $100,000 increase in the money supply.

Question

Quizplus · Accepted Answer

If banks are required to keep 100 percent of their deposits as reserves, they cannot lend out any money from those deposits. Therefore, the money supply would not increase at all from a $1,000 deposit in a checking account.

If the Government Requires Banks to Keep 100 Percent of Their