Question

Suppose that the required reserve ratio is 20%. If Saanvi deposits $4,000 in cash in her checking account, and her bank lends $1,000 to Freda, the money supply initially: increases by $4,100. increases by $1,000. remains the same. decreases by $4,000.

Answer 1

The fact that Saanvl deposits the $4,000, means that initially, the money supply remains the same.

What happened to the money supply after Saanvl's deposit?

After Saanvl deposited, the money was simply converted from cash to cash deposits at the bank.

Both of these things are considered to be a part of money supply so there is no change in money supply initially.

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