Principles of Economics, 7th Edition

Published by South-Western College
ISBN 10: 128516587X
ISBN 13: 978-1-28516-587-5

Chapter 29 - Part X - The Monetary System - Problems and Applications - Page 631: 4

Answer

The bank holds 10% of deposits as reserves. The extra 100 dollars was held as reserves, so the bank can loan out 1,000 dollars. The money supply, though, increases by 900 dollars (since the bank is holding the remaining 100 dollars as reserves).

Work Step by Step

$100/.1 = 1000$ $1000-100 =900$
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