Question

Suppose that the central bank has increased the money supply such that there is an additional $ 868981 in excess reserves. If the reserve ratio is 11 percent, what is the maximum increase in money supply? Round your answer to the nearest dollar. $

Answer 1

$7,899,827

Step-by-step explanation:

The computation of the maximum increase in money supply is shown below:

Data given in the question

Additional value in excess reserves = $868,981

Reserve ratio = 11%

By considering the above information, the maximum increase in money supply is

= Additional value in excess reserves × 100 ÷ reserve ratio

= $868,981 × 100 ÷ 11

= $868,981 × 9.09

= $7,899,827