Running a bank the current reserve ratio mandates holding re

Running a bank, the current reserve ratio mandates holding reserves equal to 20 percent of deposits. If someone deposits $100,000, by how much will the money supply in the economy increase?   

Can you please show your work so I can learn? Thanks!

Solution

Answer:

The current reserve ratio mandates holding reserves equal to 20 percent of deposits.

If someone deposits $100,000

Therefore the Current Reserve Ratio (CRR) is:

                                                = 20/100 x 100,000 = $20,000

Example:

        Suppose a bank has checkable of $100,000 and the required reserve ratio is 20%. If the bank currently has $100,000 in reserves, it could expand the money supply is: $80,000