The bank reserve system

Question

Suppose the banking system does NOT hold excess reserves and the reserve ratio is 25 percent. If Molly deposits 1,000 dollars of cash into her checking account, the banking system can increase the money supply by:

A) 5,000 dollar

B) 1,000 dollar

C) 3,000 dollar

D) 4,000 dollar

Answer 1

C) 3,000 dollar

ΔMS=(ΔM/R) - ΔM =(1'000/0.25) - 1'000 =4'000-1'000= +3'000