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31 August, 10:33

Suppose the Imperial Galactic Bank has received $1,000 of deposits and all banks face a required reserve ratio of 10 percent. What is the maximum amount of money supply that can be created with this deposit if the Imperial Galactic Bank holds on to $100 of excess reserves (assume it is the only bank in the money supply process that holds on to excess reserves) and no one holds on to cash?

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  1. 31 August, 11:36
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    Money Multiplier = 1 / reserve ratio = 1/10% = 10

    Change in Money Supply = Change in Reserves * Money Multiplier

    = 1,000 * 10 = 10,000

    So, option d is the correct option.
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