Question

Suppose a commercial banking system has $240,000 of outstanding checkable deposits and actual reserves of $85,000. If the reserve ratio is 25 percent, the banking system can expand the supply of money by a maximum of

Answer 1

Answer:

$60,000

Explanation:

The computation of Money supply expand is shown below:-

Excess reserves = Actual - required

=$85,000 - (0.25 × $240,000)

=$85,000 - $60,000

= $15,000

Money supply expand = Excess reserves ÷ Reserve ratio percentage

= $15,000 ÷ 25%

= $60,000

Therefore for computing the money supply expand we simply deduct the reserve ratio percentage from excess reserves.