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If the Federal Reserve decreases the reserve rate from 4% to 2%, how does this affect the amount of money that would result because of fractional-reserve banking from an initial…

If the Federal Reserve decreases the reserve rate from 4% to 2%, how does this affect the amount of money that would result because of fractional-reserve banking from an initial…
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If the Federal Reserve decreases the reserve rate from 4% to 2%, how does this affect the amount of money that would result because of fractional-reserve banking from an initial deposit into a bank of $55,000?

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User Leah Sapan
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8.8k points

1 Answer

2 votes
1/0.04=25
1/0.02=50
50x-25x=25x
X=55000
25*55000=1,375,000

So lowering the reserve ratio would increase the amount of money made.
answered
User Vaibhav Shah
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8.6k points
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