If the reserve ratio is 100-percent, then a new deposit of $500 into a bank account
A)eventually increases the money supply by $500.
B)leaves the size of the money supply unchanged.
C)eventually decreases the size of the money supply by $500.
D)None of the above is correct.

Question

Quizplus · Accepted Answer

If the reserve ratio is 100-percent, it means that the bank is required to hold onto all deposits as reserves and not lend out any money. Therefore, the size of the money supply remains unchanged as there is no multiplier effect.

If the Reserve Ratio Is 100-Percent, Then a New Deposit