Question

If a bank has a required reserve ratio of 25 percent and there is $10,000 in deposits, what is the maximum amount of loans that can be made by this bank

Answer 1

Answer: $40,000

Explanation:

Based on the information given in the question, the maximum amount of loans that can be made by this bank will be calculated as:

= Deposit × 1/Reserve ratio

= $10000 × 1/25%

= $10000 × 1/0.25

= $10000 × 4

= $40000

Therefore, the maximum increase in money supply is $40000.