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In: Economics

Suppose you deposit $1500 cash into your checking account. By how much will checking deposits in...

Suppose you deposit $1500 cash into your checking account. By how much will checking deposits in the banking system increase as a result when the required reserve ratio is 0.50?

Solutions

Expert Solution

Ans: $3,000

Explanation:

Here, Money multiplier = 1 / Reserve Ratio

                                     = 1 / 0.50

                                     = 2

Increase in checking deposits in the banking system = Money multiplier * Initial deposit

                                                                                    = 2 * $1500

                                                                                    = $3,000

Rahul Sunny answered 2 years ago
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