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March 30, 2017

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If the required reserve ratio is 12% and total reserves increase by $100, what is the maximum amount by which the money supply can expand?

  • Intermediate Macroeconomics - ,

    The reserve ratio is the amount that a bank is required to keep. If the required reserve s 10% and the bank had $1,000 in assets the bank would be required to keep $100 in reserves and could lend 90%. With that as the background you should now able to answer the question that you asked.

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