Suppose that the required reserve ratio is 20 percent and you deposit $50,000 of currency into Comerica Bank. What is the potential increase in deposits in the banking system brought about by your deposit? What is the potential change in the money supply?
What will be an ideal response?
The simple deposit multiplier is equal to (1/required reserve ratio). In this case it is 1/0.2 = 5. Since the deposit multiplier is 5, then an increase in deposits in the banking system is equal to the multiplier times the initial deposit. This is 5 × $50,000 = $250,000. To find the change in the money supply, we must then subtract the initial deposit because cash held by the public declines by the size of the initial deposit. Thus the change in the money supply is $250,000 - $50,000 = $200,000.
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A $2,000 decrease in investment will shift the aggregate expenditures curve down by:
a. exactly $2,000 and will decrease the equilibrium level of real GDP by exactly $2,000. b. exactly $2,000 and will decrease the equilibrium level of real GDP by less than $2,000. c. exactly $2,000 and will decrease the equilibrium level of real GDP by more than $2,000. d. less than $2,000 and will decrease the equilibrium level of real GDP by less than $2,000.
Suppose the government has granted patents to three firms that make the only versions of a particular type of product. What will result?
a. The small number of competitors will attract new firms to the market. b. Monopolistic competition will drive at least one firm to exit the market. c. The three firms will constitute an oligopoly. d. The three firms will have a legal monopoly rather than a natural monopoly.
Wage inequality has been on the rise in virtually all high-income industrial economies since the 1970s. The causes are probably numerous, but the leading explanation for the greatest share of the increase in inequality is
A) the growth of trade with developing countries. B) the growth of trade with other high income industrial countries. C) technological change which increased the relative demand for skilled workers. D) technological change which increased the relative demand for unskilled workers. E) technological change which decreased the relative demand for skilled workers.
Which of the following is untrue?
A) New issues of commercial paper can be sold directly to buyers or through dealers B) State and local governments buy commercial paper C) Individuals are major purchasers of commercial paper D) Nonfinancial firms buy commercial paper