In the simple deposit expansion model, if the banking system has excess reserves of $75, and the desired reserve ratio is 20 percent, the potential expansion of chequable deposits is ________.

Question

Quizplus · Accepted Answer

The potential expansion of chequable deposits can be calculated using the money multiplier formula, which is 1/reserve ratio. With a reserve ratio of 20% (or 0.20), the multiplier is 1/0.20 = 5. Therefore, with excess reserves of $75, the potential expansion is 75 * 5 = $375.

In the Simple Deposit Expansion Model, If the Banking System