Suppose Warren Buffet withdraws $1 million from his checking account at Chase Manhattan Bank.If the required reserve ratio is 20 percent,what is the maximum change in deposits in the banking system?

Question

Quizplus · Accepted Answer

The maximum change in deposits is calculated using the money multiplier, which is 1 divided by the reserve ratio (1/0.20 = 5). The initial withdrawal of $1 million leads to a maximum decrease in deposits of $1 million * 5 = $5 million.

Suppose Warren Buffet Withdraws $1 Million from His Checking Account