Suppose that the banking system receives an injection of new reserves amounting to $100,000 in new checkbook (demand deposit) funds which carry a legal reserve requirement of 15 percent. Moreover, banks belonging to the system typically set aside an additional 3 percent in cash reserves to cover any unexpected deposit withdrawals or unanticipated loan demand. With this newly added amount of $100,000 in legal reserves (and assuming no leakages from the banking system and that all new loanable funds are kept in checkable deposits) what total volume of new deposits and new loans will the banking system as a whole eventually generate as funds pass from bank to bank in the system?

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The Answer of Suppose that the banking system receives an injection of new reserves amounting to $100,000 in new checkbook (demand deposit) funds which carry a legal reserve requirement of 15 percent. Moreover, banks belonging to the system typically set aside an additional 3 percent in cash reserves to cover any unexpected deposit withdrawals or unanticipated loan demand. With this newly added amount of $100,000 in legal reserves (and assuming no leakages from the banking system and that all new loanable funds are kept in checkable deposits) what total volume of new deposits and new loans will the banking system as a whole eventually generate as funds pass from bank to bank in the system?

Suppose That the Banking System Receives an Injection of New