Question

Assume that the required reserve ratio is10 percent, banks keep no excess reserves,and borrowers deposit all loans made by banks.Suppose you have saved $100 in cash at home and decide to deposit it in your checking account.As a result of your deposit, the money supply can increase by a maximum of

Answer 1

The right answer is "10".

Step-by-step explanation:

The given values are:

Deposit amount,

= $100

Required reserve ration,

= 10%

or,

= 0.1

Now,

The formula to calculate the multiplier will be:

⇒
`Multiplier=(1)/(Required \ reserve \ ratio)`

On putting the values in the above formula, we get

⇒
`=(1)/(0.1)`

⇒
`=10`