Suppose the required reserve ratio is 20%. A $40 million cash deposit will, at most, allow an expansion of the money supply to

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Quizplus · Accepted Answer

The maximum expansion of the money supply is determined by the money multiplier formula, which is 1/required reserve ratio. With a 20% reserve ratio (0.20), the multiplier is 1/0.20 = 5. Therefore, a $40 million deposit can expand the money supply by 5 times that amount, which is $200 million.

Suppose the Required Reserve Ratio Is 20