Answer:
Increase in money supply = $200,000
Explanation:
Note: The given question is incomplete, missing part is as follow:
Metropolis National Bank
Balance sheet
Assets Liabilities
Reserves $60,000 Deposits $500,000
<u>
Loans $440,000 </u>
Computation:
Excess reserve hold = 2% × Deposits
Excess reserve hold = 2% × $500,000
Excess reserve hold = $10,000
Required reserve = Reserves - Excess reserve hold
Required reserve = $60,000 - $10,000
Required reserve = $50,000
So,
Required reserve ratio = [$50,000 / $500,000]100 = 10%
Multiplier(K) = 1 / Required reserve ratio
Multiplier(K) = 1 / 10%
Multiplier(K) = 10
Total Money = Person deposit + Excess reserve hold
Total Money = $10,000 + $10,000
Total Money = $20,000
Increase in money supply = Total Money × Multiplier(K)
Increase in money supply = $20,000<u>
</u> × 10
Increase in money supply = $200,000
