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Suppose a banking system receives a new deposit of $1,000. If the reserve requirement is 20%, by how much can the total volume of deposits in that banking system ultimately rise as a result, assuming all excess reserves are loaned out and all loan proceeds are re-deposited?

Respuesta :

Answer:

Increase in initial deposit will be $4000

Explanation:

We have given initial deposit = $1000

Required reserve ratio = 20 % = 0.2

We have to find the total increase in deposit

We know that total increase in deposit = [tex]\frac{intial\ deposit}{required\ reserve\ ratio}-initial\ deposit[/tex]

So We know that total increase in deposit = [tex]\frac{1000}{0.2}-1000=$4000[/tex]

So increase in initial deposit will be $4000

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