Question

: If checkable deposits started at $300,000 in First Main Street Bank, with a required reserve ratio of 15%, and no excess reserves or cash leakage exist, what is the maximum potential increase in the money supply?

a) $255,000
b) $285,000
c) $315,000
d) $330,000

Answer 1

The maximum potential increase in the money supply is $330,000.

Step-by-step explanation:

To calculate the maximum potential increase in the money supply, we need to use the required reserve ratio. In this case, the required reserve ratio is 15%. The formula to calculate the maximum potential increase is: (Checkable Deposits) / (Required Reserve Ratio).

Using the given information, the checkable deposits start at $300,000. So, the maximum potential increase in the money supply is $300,000 / 0.15 = $2,000,000.

Therefore, the correct answer is (d) $330,000.