If reserves in the banking system increase by $100,then checkable deposits will increase by $1,000 in the simple model of deposit creation when the required reserve ratio is

Question

Quizplus · Accepted Answer

In the simple model of deposit creation, the formula for the potential change in checkable deposits (D) is:

D = (1/rr) x R

Where rr is the required reserve ratio and R is the change in reserves.

Plugging in the values:

D = (1/0.1) x 100

D = 1000

Therefore, if the required reserve ratio is 0.1, then an increase in reserves by $100 will result in an increase in checkable deposits by $1000.

If Reserves in the Banking System Increase by $100,then Checkable