Question

Assume the required reserve ratio is 10% and banks keep no excess reserves, and borrowers deposit all loans made by banks. Suppose you have saved $100 in cash at home and decide to deposit it in you checking account. As a result of your deposit, the money supply can increase by a maximum of how many dollars?

Answer 1

Answer:$90

Explanation:

The reserve ratio is the percentage of deposits that the banks are obligated to keep from customer savings for deposit demand and make the balance available to clients as loans. The federal reserves varies the reserve ratio on it's intention for the money supply, when it intends to increase the money supply it reduce it and vice versa.

In this situation the highest amount that the money supply can be increased with is 90% of the deposit which is $90