Final answer:
An initial deposit of $5,000 with a reserve ratio of 5% leads to a money multiplier of 20. This means that the banking system has the potential to increase the money supply by a total of $100,000, which is the result of the lending and deposit cycle across multiple banks.
Step-by-step explanation:
The question involves understanding how banks create money through the deposit and lending process, which is influenced by the reserve ratio. When an individual immigrates to Canada and deposits $5,000 into the Canadian banking system, this deposit can lead to a potential money creation process in the economy.
The potential money creation is calculated using the money multiplier formula, which is 1 divided by the reserve ratio. Given a reserve ratio of 5%, or 0.05, the money multiplier is 1 / 0.05 = 20. This means that the initial deposit can potentially lead to a 20-fold increase in the total money supply through the lending and deposit cycle across multiple banks. to calculate the final change in the money supply, we multiply the initial deposit by the money multiplier. In this case, $5,000 × 20 = $100,000. This represents the total potential money supply created from the initial $5,000 deposit after it has been loaned and re-deposited multiple times across the banking system.