The statement is FALSE because the money supply could increase by $100,000
The amount of reservable liabilities that commercial banks must keep rather than lend out or invest is known as the reserve ratio. The central bank of the nation, in this case, the Federal Reserve in the United States, sets this criterion. It is often referred to as the ratio of cash reserves.
Use the equation Change in Money Supply = Change in Reserves * Money Multiplier to get the maximum change in the money supply. A rise in the money supply follows a decline in the reserve ratio, which pushes interest rates lower and ultimately raises nominal GDP.
The total increase in money supply is calculated by the formula:
Total Increase in money supply = Deposits * (1/r)
= 10000 * (1 / 10%) = 10000 * 10 = $100,000
Therefore, the money supply could increase by $100,000
Therefore, it is false to say that the money supply could only be increased up to $9000 and not more than that. It can be increased by $100,000
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