Question

if the federal reserve decreases the reserve rate from 5% to 2.5% how does this affect the amount of money that would result because of fractional reserve banking from an initial deposit into a bank of $35000

Answer 1

The amount of the money supply when the reserve rate is 5%
35,000÷0.05=700,000

The amount of the money supply when the reserve rate is 2.5%
35,000÷0.025=1,400,000

The affect that the amount of money would increase by 700000 when the reserve rate decreased from 5% to 2.5%
1,400,000−700,000=700,000

Hope it helps!

Answer 2

It increases the amount by 700,000