Assume a Simplified Banking System Subject to a 20 Percent

question 101

Multiple Choice

Assume a simplified banking system subject to a 20 percent required reserve ratio. If there is an initial increase in excess reserves of $100,000, the money supply:

• A) increases $100,000.
• B) increases $500,000.
• C) increases $600,000.
• D) decreases $500,000.