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Suppose the Reserve Ratio was 10% and a bank with no excess reserves had $100,000 deposited into a checking account.

What would the potential increase in money supply be?


$0 because if the bank has no excess reserves at time of deposit the bank must keep it all.


$10,000 because the increase in money supply is equal to the reserve requirement.


$100,000 which is the amount of the deposit.


$900,000 because excess reserves impact will be 10 to 1 impact.


$1,000,000 because once the money is lent out it will have a 10 to 1 impact.

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