Suppose the reserve requirement ratio is 20 percent. Assuming no bank holds excess reserves and nobody withdraws cash, a $10,000 injection of new reserves by the Fed could create _____

Question

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With a reserve requirement ratio of 20%, each dollar of reserves can support $5 of deposits because the multiplier is 1/(Reserve Requirement), which is 1/0.20 = 5. Therefore, a $10,000 injection can create $50,000 in new checkable deposits.

Suppose the Reserve Requirement Ratio Is 20 Percent