DSE 14-30

Refer to the following balance sheet of a banking system.

Suppose the required reserve ratio is 25%. If all banks loan out their excess reserves, which of the following statements about the above banking system is correct?

A. The amount of reserves held by the banks will decrease.

B. The maximum banking multiplier will increase.

C. The money supply will remain unchanged.

D. The maximum possible increase in loans will be the same as the maximum possible increase in deposits.