Suppose Bill Gates deposits $20 million into his checking account at Wells Fargo Bank.If the required reserve ratio is 10 percent,what is the maximum change in money supply?

Question

Quizplus · Accepted Answer

The maximum change in money supply can be calculated using the money multiplier formula:
Money multiplier = 1/required reserve ratio
In this case, the required reserve ratio is 10%, so the money multiplier is 1/0.1 = 10.
Therefore, the maximum change in money supply is:

Maximum change in money supply = money multiplier x initial deposit
= 10 x $20 million
= $200 million

However, since the initial deposit is already included in the money supply, we need to subtract it to get the net change. Therefore:

Net change in money supply = maximum change in money supply - initial deposit
= $200 million - $20 million
= $180 million

So the correct answer is D) $180 million.

Suppose Bill Gates Deposits $20 Million into His Checking Account