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northern city bank keeps no excess reserves. assume northern city bank receives a deposit of $50 million dollars. as a result of the deposit, northern city bank’s required reserves increase by $10 million. what is the maximum possible change in the money supply in the banking system that could result from the $50 million deposit?

Respuesta :

The maximum possible change in the money supply is $250 million.

The change in required reserves when an amount of money is deposited in a bank is determined by the reserve requirement.

Reserve requirement = increase in required reserves / amount deposited

$10 million / $50 million = 0.20 = 20%

The change in money supply can be determined using this formula:

Amount deposited / reserve requirement

$50 million / 20%

$50 million / 0.2 = $250 million

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