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If the reserve ratio is 8 percent, then an additional $1,000 of reserves can increase the money supply by as much as a. $6,400. b. $8,000. c. $20,000. d. $12,500.
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If the reserve ratio is 8 percent, then an additional $1,000 of reserves can increase the money supply by as much as

a. $6,400.
b. $8,000.
c. $20,000.
d. $12,500.

User David Berg
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1 Answer

21 votes
21 votes

Answer:

d. $12,500

Step-by-step explanation:

Calculation to determine what an additional reserves can increase the money supply by

Using this formula

Increase in Money supply=1/Reserve ratio*Additional Reserves

Let plug in the formula

Increase in Money supply=1/.08* 1,000

Increase in Money supply=$12,500

Therefore an additional reserves can increase the money supply by $12,500

User Anna Poorani
by
3.1k points
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