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Suppose your grandma sends you $100 for your birthday and you deposit $100 into your checking account at the local bank. The reserve ratio is 10%. Based upon this deposit, the bank's excess reserves have increased by _____ and, if the bank lends all excess reserves, the money supply could eventually grow by as much as _____.

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Answer:

$90; $900

Explanation:

The bank's excess reserves have increased by _$90__ and, if the bank lends all excess reserves, the money supply could eventually grow by as much as __ $900.

The money multiplier is equal to: 1 divided by the reserve ratio (10%).

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