Problem Assume that the banking system has total reserves of $100 billion. Assume also that required reserves are 10 percent of checking deposits and that banks holu . excess reserves and households hold no currency. a. what is the money multiplier: what is the money supply? b if the red ..Jv. raises required reserves to 20 percent of deposits .what are the change in reserves and the change in the money supply? Step-by-step solution 1. Step 1 of 4 a. Given that the banking system has the total reserves of $100 billion and the required reserves is 10 percent. Therefore, the money multiplier is 0.10 = 10. Comment 2. Step 2 of 4 As the given reserves are $100 billion, the money supply is 10 x $120 billion = $1,005 billion. Comment 3. Step 3 of 4 b. .f the required reserve ratio is raised to 20 %, the money multiplier would be 0.20 = 5. Comment 4. Step 4 of 4 As the given reserves are $100 billion, the money supply would be $100 x 5 = $500. Therefore, the decline in the money supply is $1000 - $500 = $500