In the simple deposit expansion model, if the desired reserve ratio is 20 percent and the Bank of Canada increases reserves by $100, chequable deposits can potentially expand by ________.

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Quizplus · Accepted Answer

The simple deposit expansion model formula is = (1/Required Reserve Ratio) x Change in Reserves. In this case, the required reserve ratio is 20%, therefore, the formula becomes = (1/0.2) x 100 = $500. Therefore, chequable deposits can potentially expand by $500.

In the Simple Deposit Expansion Model, If the Desired Reserve