Question

Imagine that Odyssey National is a brand new bank, and that its required reserve ratio is 10 percent. Ifit accepts a $1,000 cash deposit, then, excluding the $1,000 initial deposit, the banking system can increase the money supply by:a.$900.b.$910.c.$1,000.d.$9,000.e.$10,000.

Answer 1

a.$900

Step-by-step explanation:

The required reserve is the amount of reserve required by the Central bank for banks to keep as reserves.

If the reserve ratio is 10% and $1000 is deposited, the required reserve is $100.

$1000 - $100 = $900 would be available to banks to give out as loans. Thus , money supply increases by $900.

I hope my answer helps you.