Assume That Banks Do Not Hold Excess Reserves

question 73

Multiple Choice

Assume that banks do not hold excess reserves. The banking system has $50 million in reserves and has a reserve requirement of 10 percent. The public holds $20 million in currency. Then the public decides to withdraw $5 million in currency from the banking system. If the Bank of Canada wants to keep the money supply stable by changing the reserve requirement, then what will the new reserve requirement be?

• A) 8.1 percent
• B) 9.1 percent
• C) 9.7 percent
• D) 10 percent

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