If the reserve ratio is 9 percent, then a decrease in reserves of $6,000 can cause the money supply to fall by as much as
A)$60,000.00.
B)$66,666.67.
C)$90,900.00.
D)$100,555.56.

Question

Quizplus · Accepted Answer

The reserve ratio is the percentage of a bank's deposits that it is required to hold in reserve. The formula for calculating the maximum change in the money supply is:

Maximum change in money supply = 1/reserve ratio x change in reserves

In this case, the reserve ratio is 9%, or 0.09 as a decimal. A decrease in reserves of $6,000 can be calculated as:

Maximum change in money supply = 1/0.09 x 6000 = 66,666.67

Therefore, the answer is B, $66,666.67.

If the Reserve Ratio Is 9 Percent, Then a Decrease