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Scenario: Money Creation
The reserve requirement is 20%. Leroy receives $1,000 as a graduation present and deposits the money in his checking account. The bank does NOT want to hold excess reserves.
-(Scenario: Money Creation) Look at the scenario Money Creation. What is the maximum possible expansion in the money supply?

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The maximum possible expansion in the money supply can be calculated by dividing the initial deposit by the reserve requirement, which in this case will be $1,000 divided by 0.2 (20%). The maximum possible expansion in the money supply is $5,000.

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