The banking system as a whole can expand the supply of money by the maximum amount of $27,000
What is reserve ratio?
Checkable deposits $100,000
Total reserves = $35,000
=100000+35000
=135000
=20/100*135000
=27000
- The amount of reservable liabilities that commercial banks must keep onto 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.
- The reserve requirement, which is frequently used interchangeably with the reserve ratio, refers to the minimum amount of reserves that a bank must maintain. Regulation D of the Federal Reserve Board lays out the reserve ratio. For all depository institutions with transaction accounts, Regulation D established a set of uniform reserve requirements. It also mandates that banks submit regular reports to the Federal Reserve.
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