If the required reserve ratio is 10% and the Bank of Canada conducts an open-market purchase of $100,what is the maximum possible change in the money supply?

Question

Quizplus · Accepted Answer

The maximum possible change in the money supply can be calculated using the money multiplier formula: 
Change in Money Supply = (1/Required Reserve Ratio) x Change in Reserves
In this case, the required reserve ratio is 10%, so the inverse of this is 10. Then, the change in reserves is $100 from the open-market purchase. Therefore, the maximum possible change in the money supply is: 
Change in Money Supply = (1/0.1) x $100 = $1 000

If the Required Reserve Ratio Is 10% and the Bank