A bank which must hold 100 percent reserves opens in an economy that had no banks and a currency of $150. If customers deposit $50 into the bank, what is the value of the money supply?
A)$50
B)$100
C)$150
D)$200

Question

Quizplus · Accepted Answer

The money supply remains $150 because the $50 deposited into the bank is still part of the money supply, along with the $100 that remains in currency outside the bank. A 100 percent reserve bank does not alter the money supply through lending.

A Bank Which Must Hold 100 Percent Reserves Opens in an Economy