Suppose that you take $150 in currency out of your pocket and deposit it in your checking account. If the required reserve ratio is 11%, what is the largest amount (in dollars) by which the money supply can increase as a result of your action

The largest amount by which the money supply can be increased is $1363.5

Explanation:

Checking/Demand Deposit = $150 (which is assumed to be the part of new money supply)

Required reserve ratio = 11%

= 0.11

We, money multiplier = 1 : m

where,

m = Demand deposits : Required reserves

= 0.09

Money multiplier = 1 : 0.11

Money multiplier = 9.09

So, for $150 deposited the money supply will increase by:

= $ (150 * 9.09)

= $1363.5

Therefore, the largest amount by which the money supply can be increased is $1363.5