Assume Company X deposits $100,000 in cash in chartered Bank A. If no excess reserves exist at the time this deposit is made and the desired reserve ratio is 20, Bank A can increase the money supply by a maximum of:

Question

Quizplus · Accepted Answer

The desired reserve ratio is 20%, so Bank A must keep 20% of the $100,000 deposit in reserves, which is $20,000. The maximum amount that Bank A can increase the money supply is the difference between the initial deposit and the required reserves, which is $80,000. Therefore, the correct answer is C) $80,000.

Assume Company X Deposits $100,000 in Cash in Chartered Bank