### By how much can the money supply be expanded

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##### Reference no: EM13191603

First bank has total deposits of \$2,000,000 legal reserves of \$220,000.

a. If the reserve requirement is 10 percent, what is the maximum loan that First bank can make, and what is the maximum increase in the money supply based on First bank's reserve position?

b. If the reserve requirement is changed to 5 percent, how much can First Bank lend, and by how much can the money supply be expanded?

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