Question

Suppose Warren Buffet withdraws? $1 million from his checking account at Chase Bank. If the reserve requirement ratio is? .2, what is the maximum change in deposits in the banking? system?

Answer 1

decrease of 5,000,000

Step-by-step explanation:

As the reserve ratio is 0.2

the multiplier in the banking system is 1/0.2 = 5

A withdrawal of 1,000,000 dollars will change the money supply by:

1,000,000 x 5 = 5,000,000

This would be the maximum theoretical decrease in the system.