Suppose the reserve ratio is 25 percent and the public holds $10 million in cash
Suppose the reserve ratio is 25 percent and the public holds $10 million in cash. Then the public decides to withdraw $5 million from the banks. How does the money supply eventually change?
a. falls by $20 million
b. falls by $35 million
c. falls by $5 million
d. falls by $10 million
Homework Answers
The money supply falls by 5/0.25 = $20 million.
Hence the correct option is
$20 million.
Add Answer to:
Suppose the reserve ratio is 25 percent and the public holds $10 million in cash
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