Question

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.

Answer 1

Answer:

d. $12,500

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