Suppose the desired reserve ratio is 10 percent and there is no currency drain.Then a $200 increase in the monetary base results in the banking system increasing the quantity of money by
A)$200.
B)$2,000.
C)$20.
D)$10.
E)$2,190.

Question

Quizplus · Accepted Answer

The banking system will increase the quantity of money by 1/0.1 times the increase in the monetary base. So, the quantity of money will increase by $2,000 (1/0.1 x $200).

Suppose the Desired Reserve Ratio Is 10 Percent and There