With a reserve requirement of 25 percent, an injection of $100 million of new excess reserves into the economy could cause the money supply to expand by $400 million.

Question

Quizplus · Accepted Answer

With a reserve requirement of 25 percent, each dollar of excess reserves can support up to $4 of new deposits (1 / 0.25 = 4), so an injection of $100 million could potentially expand the money supply by up to $400 million through the money multiplier effect.

With a Reserve Requirement of 25 Percent, an Injection of $100