Suppose the Imperial Galactic Bank has received $1,000 of deposits and all banks face a required reserve ratio of 10 percent. What is the maximum amount of money supply that can be created with this deposit if the Imperial Galactic Bank holds on to $100 of excess reserves (assume it is the only bank in the money supply process that holds on to excess reserves) and no one holds on to cash?

Question

Jadyn Cuevas

Business

15 March, 06:50

Suppose the Imperial Galactic Bank has received $1,000 of deposits and all banks face a required reserve ratio of 10 percent. What is the maximum amount of money supply that can be created with this deposit if the Imperial Galactic Bank holds on to $100 of excess reserves (assume it is the only bank in the money supply process that holds on to excess reserves) and no one holds on to cash?

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Answers (1)

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Nina Crane · Answer 1

Money Multiplier = 1 / reserve ratio = 1/10% = 10

Change in Money Supply = Change in Reserves * Money Multiplier

= 1,000 * 10 = 10,000

So, option d is the correct option.