Assume the commercial banking system has checkable deposits of $20 billion and excess reserves of $2 billion when the reserve requirement is 25%. If the reserve requirement is then lowered to 20%, we can conclude that the ________.
A. banking system now has excess reserves of $3 billion
B. Fed has decided that money supply needed to be reduced
C. monetary multiplier has decreased
D. maximum money-creating potential of the banking system has been increased by $7 billion
Answer: A
Economics
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