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deposits as reserves

If banks are required to hold 20% of all deposits as reserve, and an additional 5% is retained as a hedge against falling short of reserves, then a $300,000 increase in deposits will result in:

A) a $1.5 million increase in deposits.
B) a $1.2 million increase in deposits.
C) a $900,000 increase in deposits.
D) a $120,000 increase in deposits.
E) a $60,000 increase in deposits

Solution Preview

If the Federal Reserve requires that banks retain 20% of all deposits as reserves, and an additional 5% is also retained. ...

Solution Summary

An increased amount of money supply problem is featured.

$2.19