The Table Given Below Shows the Assets and Liabilities of the National

The table given below shows the assets and liabilities of the National Bank. Assume that this is the only bank in the economy.
Table 13.2
$\begin{array}{c}\text { Balance Sheet of National Bank }\\\quad\quad\quad\text { Assets } \quad\quad\quad\quad\quad\quad\quad\quad \text { Liabilities }\\\begin{array}{|c|c|c|c|}\hline\text { Vault Cash } & \$ 1,725 & \text { Deposits } & \$ 5,450 \\\text { Deposit in Fed } & \$ 425 & & \\\text { Loans } & \$ 3,300 & & \\\hline \text { Total Assets } & \$ 5,450 & \text { Total Liabilities } & \$ 5,450\\\hline\end{array}\end{array}$


-Refer to Table 13.2. If the Fed increased the reserve requirement from 10 percent to 25 percent, the money supply in the whole banking system could now potentially:

A) decrease by $12,900.
B) decrease by $1,272.50.
C) increase by $7,875.
D) decrease by $7,875.
E) increase by $3,150.

Correct Answer:

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