Suppose the Banking System Has $10 Million in Reserves and the Reserve

question 70

Multiple Choice

Suppose the banking system has $10 million in reserves and the reserve ratio is 25 percent. Then bankers decide to decrease the reserve ratio to 20 percent. How does this decision eventually change the money supply?

• A) increases by $0.5 million
• B) increases by $5 million
• C) increases by $10 million
• D) increases by $20 million

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