Question

If reserves in the banking system increase by $100, then checkable deposits will increase by $500 in the model of multiple deposit creation when the required reserve ratio is a _________.a. 0.01b. 0.1c. 0.06d. 0.2

Answer 1

d. 0.2

Step-by-step explanation:

D = 500

R = 100

D*rr = R

500*rr = 100

rr = 100/500

= 0.2

Therefore, The required reserve ratio is a 0.2