Question

Suppose a banking system has a required reserve ratio of 0.15. How much can the money supply increase in response to a $1 billion increase in excess reserves for the whole banking system?

Answer 1

the money supply increase in response to a $1 billion increase in excess reserves for the whole banking system is $6.67billion.

Step-by-step explanation:

Increase in money supply = 1/0.15

Increase in money supply = $6.67 billion

Therefore, the money supply increase in response to a $1 billion increase in excess reserves for the whole banking system is $6.67billion.