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First United Bank has a reserve requirement of 0.18. If you deposit money into your bank account at First United Bank, which results in $700 increase in excess reserves, then what is the maximum possible increase in money supply? Round your answer to two decimal places.

Respuesta :

The maximum possible increase in the money supply given the reserve requirement and the excess reserves is $4,742.55.

What is the maximum possible increase in the money supply?

The first step is to determine the total amount deposited in the bank.

Amount deposited = excess reserve / (1 - required reserve)

$700 / (1 - 0.18)

$700 / 0.82 = $853.66

The maximum possible increase in the money supply = $853.66 / 0.18 = $4,742.55

To learn more about reserve ratio, please check: https://brainly.com/question/6831267

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