Question

Suppose a commercial banking system has $40,000 of outstanding checkable deposits and actual reserves of $4,500. If the reserve ratio is 10 percent, the banking system can expand the supply of money by the maximum amount of

Answer 1

Answer: $50000

Explanation:

Based on the information that's been given in the question, firstly we need to calculate the excess reserves which will be:

= $4500 - (10% × $40000)

= $4500 - $4000

= $500

Then, the money supply that's expanded will be:

= Excess reserve / Reserve ratio

= $5000 / 10%

= $5000 / 0.1

= $50000

Therefore, the answer is $50,000.