Scenario 25-2

Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%.

-Refer to Scenario 25-2. As a result of Kristy's deposit, checking account deposits in the banking system as a whole (including the original deposit) could eventually increase up to a maximum of

Question

Scenario 25-2

Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%.

-Refer to Scenario 25-2. As a result of Kristy's deposit, checking account deposits in the banking system as a whole (including the original deposit) could eventually increase up to a maximum of

Quizplus · Accepted Answer

The maximum increase in checking account deposits is determined by the money multiplier, which is 1 divided by the reserve ratio. With a reserve ratio of 20%, the money multiplier is 5 (1/0.20). Therefore, the maximum increase in deposits is $10,000 * 5 = $50,000.

Scenario 25-2 Imagine That Kristy Deposits $10,000 of Currency into Her Checking