Reduce the money supply by increasing reserve requirement

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The U.S. money supply (M1) at the beginning of 2000 was $1,148 billion broken down as follows: $523 billion in currency, $8 billion in traveler's checks, and $616 billion in checking deposits. Suppose the Fed decide to reduce the money supply by increasing the reserve requirement from 10 percent to 11 percent. Assuming all banks were initially loaned up (had no excess reserves) and currency held outside of banks did not change how large a change in the money supply would have resulted from the change in the reserve requirement? (Include calculations)

Reference no: EM13771387

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