Suppose a bank has checkable deposits of $100,000 and the required reserve ratio is 20 percent. If the bank currently has $100,000 in reserves, it could expand the money supply by as much as:
A) $100,000.
B) $400,000.
C) $0.
D) $20,000.
E) $80,000.

Question

Quizplus · Accepted Answer

The bank is required to keep 20% of $100,000, which is $20,000, as reserves. Since it has $100,000 in reserves, it has $80,000 in excess reserves that can be loaned out, thus expanding the money supply by $80,000.

Suppose a Bank Has Checkable Deposits of $100,000 and the Required