The following table shows a T-account for Bank A in a new economy.

-Refer to the table above.Assume that all the banks in this new economy have the same reserve ratio.Then an increase in reserves of $250 for Bank A could increase deposits for each bank in the economy by how much?

Question

The following table shows a T-account for Bank A in a new economy.
 
-Refer to the table above.Assume that all the banks in this new economy have the same reserve ratio.Then an increase in reserves of $250 for Bank A could increase deposits for each bank in the economy by how much?

Quizplus · Accepted Answer

Given that all banks have the same reserve ratio, the increase in reserves for Bank A can be lent out and redeposited across the banking system multiple times, creating a multiplier effect on the total deposits in the economy. The total increase in deposits is determined by the money multiplier formula, which is 1/reserve ratio. Without the specific reserve ratio, we can't calculate the exact multiplier effect. However, the question implies a multiplier effect is at play, making $1,757 the correct choice as it suggests a significant increase in deposits beyond the initial $250, consistent with the concept of the money multiplier in fractional reserve banking systems.

The Following Table Shows a T-Account for Bank a in a New