Suppose your grandma sends you $100 for your birthday and you deposit $100 into your checking account at the local bank. The reserve ratio is 10%. Based upon this deposit, the bank's excess reserves have increased by _ and, if the bank lends all excess reserves, the money supply could eventually grow by as much as _. * 10 points A. $90; $1000 B. $100; $900 C. $90; $900 D. $100; $1000 E. $10; $1000

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22-10-2021
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Suppose your grandma sends you $100 for your birthday and you deposit $100 into your checking account at the local bank. The reserve ratio is 10%. Based upon this deposit, the bank's excess reserves have increased by _ and, if the bank lends all excess reserves, the money supply could eventually grow by as much as _. * 10 points A. $90; $1000 B. $100; $900 C. $90; $900 D. $100; $1000 E. $10; $1000

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ewomazinoade ewomazinoade · Answer 1 · 2021-10-29T13:12:17+02:00

Based upon this deposit, the bank's excess reserves have increased by $90 and, if the bank lends all excess reserves, the money supply could eventually grow by as much as $1000.

Fractional reserve banking is a banking system where a percentage of all deposits are kept as reserves with the central bank. The amount kept as reserves is determined by the reserve ratio.

If the reserve ratio is 10%, the percentage of the bank's excess reserve is 90% (100% - 10%).

Amount of excess reserves = 90% x $100 = $90.

The total increase in money supply can be determined by the money multiplier.

Money multiplier = amount deposited / reserve requirement

$100 / 10%

$100 / 0.1 = $1000

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