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Suppose you win on a scratch‑off lottery ticket and you decide to put all of your $ 2,500 winnings in the bank. The reserve requirement is 10 % . What is the maximum possible increase in the money supply as a result of your bank deposit?

Answer :

Ritmeks

Answer:

$25000

Explanation:

The simple deposit multiplier is:

Change in deposits= (1/rr) × Change in reserves

Where rr is the required reserved ratio

Given that:

Change in reserves= $2500

Required reserved ratio= 10%,

= 10/100=0.1

rr=0.1

Therefore,

Change in deposits= 1/0.1 × 2500

= 10 ×2500

=25000

Thus, the maximum possible increase in the money supply that is as a result of your bank deposit is $25000

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