18.1k views
1 vote
Assume the reserve requirement is 10%. First National Bank receives a deposit of $5,400. If there is no slippage, how much could the money supply expand?

User Steve Yost
by
6.0k points

1 Answer

5 votes
$4,860 The reserve requirement is the percentage of deposits that the bank has to keep on reserve to handle withdraws. So in this case, with a deposit of $5,400, the bank is required to increase its reserve by 10% of the deposit, or $540. That leaves the bank free to loan out the remaining $5,400 - $540 = $4,860 to other people or organizations.
User MJ Studio
by
7.3k points