Suppose a banking system has a required reserve ratio of 0.15. How much can the money supply increase in response to a $1 billion increase in excess reserves for the whole banking system?

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Business

Omar Zavala

18 August, 07:29

Suppose a banking system has a required reserve ratio of 0.15. How much can the money supply increase in response to a $1 billion increase in excess reserves for the whole banking system?

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Willie Cardenas · Answer 1

the money supply increase in response to a $1 billion increase in excess reserves for the whole banking system is $6.67billion.

Explanation:

Increase in money supply = 1/0.15

Increase in money supply = $6.67 billion

Therefore, the money supply increase in response to a $1 billion increase in excess reserves for the whole banking system is $6.67billion.