Suppose the excess reserves in Eastern Bank increase by $700.Given a desired reserve ratio of 2.5% and no cash drain,the maximum change in deposits for the entire banking system would be

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The maximum change in deposits for the entire banking system can be calculated using the money multiplier formula, which is 1 / reserve ratio. With a reserve ratio of 2.5% or 0.025, the money multiplier is 1 / 0.025 = 40. Therefore, the maximum change in deposits is $700 (the increase in excess reserves) multiplied by the money multiplier (40), which equals $28,000.

Suppose the Excess Reserves in Eastern Bank Increase by $700