Suppose the excess reserves in Toronto Dominion 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

Question

Quizplus · Accepted Answer

The maximum change in deposits for the entire banking system can be calculated using the money multiplier equation:

Maximum change in deposits = (1 / Required reserve ratio) * Excess reserves

In this case, the required reserve ratio is 2.5%, which can be expressed as 0.025 in decimal form. Therefore, the maximum change in deposits would be:

Maximum change in deposits = (1 / 0.025) * $700 = $28,000

So the correct answer is D.

Suppose the Excess Reserves in Toronto Dominion Bank Increase by $700.Given