In April 2011, the money supply was estimated to be 52 million hurls. At the same time, bank reserves were 6.24 million hurls and the reserve requirement was 12 percent. The banking industry, being “loaned up,” lobbied the Congress to cut the reserve ratio. The Congress yielded and cut required reserves to 10 percent. What is the impact on the money supply?
From my calculation, a decrease in the required reserve ratio would mean that the reserves of 6.24 million will support 62.4 million hurl. Does this means that the money supply increases by 10.4 million?