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Use the following table to answer the following question:
Table 1 First National Bank (T-Account) Assets: Liabilities: Reserves: $100, 000 Deposits: $500, 000 Loans: $400, 000
Suppose that in Metropolis there are $500, 000 of currency in circulation. There is also a fractional reserve commercial banking system with a 5% reserve requirement. Assume that the T-account for First National Bank, which is the only commercial bank with excess reserves, is given by table 1. If First National Bank decided to reduce its reserves to only the required amount, by how much would the economy's money supply increase?
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