Although the U.S. Federal Reserve doesn’t often use changes in reserve requirements to manage the money supply, the central bank of Albernia does. The commercial banks of Albernia have $100 million in reserves and $1,000 million in checkable deposits; the initial required reserve ratio is 10%. The commercial banks follow a policy of holding no excess reserves. The public holds no currency, only checkable deposits in the banking system.
a. The money supply could potentially (increase, decrease) ________ by $ _____ million if the required reserve ratio falls to 5%.
b. Assume part (a) did not occur (the reserve ratio is still 10%). The money supply could potentially (increase, decrease) ________ by $ _____ million if the required reserve ratio rises to 25%.