Question

Suppose your grandma sends you $100 for your birthday and you deposit $100 into your checking account at the local bank. The reserve ratio is 10%. Based upon this deposit, the bank's excess reserves have increased by _____ and, if the bank lends all excess reserves, the money supply could eventually grow by as much as _____.

Answer 1

$90; $900

Step-by-step explanation:

The bank's excess reserves have increased by _$90__ and, if the bank lends all excess reserves, the money supply could eventually grow by as much as __ $900.

The money multiplier is equal to: 1 divided by the reserve ratio (10%).