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? Select one: a. increases by $10 million b. increases by $5 million C. increases by $0.5 million d. increases by $20 million

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? Select one: a. increases by $10 million b. increases by $5 million C. increases by $0.5 million d. increases by $20 million

Macroeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506756

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter13: Money And The Banking System

Section: Chapter Questions

Problem 7CQ

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Question

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?
Select one:
a.
increases by $10 million
b.
increases by $5 million
C.
increases by $0.5 million
d.
increases by $20 million

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