Question

Suppose you win on a scratch‑off lottery ticket and you decide to put all of your $2,500 winnings in the bank. The reserve requirement is 5% . What is the maximum possible increase in the money supply as a result of your bank deposit? maximum increase: $ Which events could cause the increase in the money supply to be less than its potential? Banks choose to loan out all excess reserves. All money loaned out is deposited back into the banking system. Banks decide to keep some excess reserves on hand. Some loan recipients choose to hold some cash instead of depositing all of it in banks.

Answer 1

$50,000

Banks decide to keep some excess reserves on hand.

Step-by-step explanation:

Increase in the total value of checkable deposit is determined by the money multiplier

Money multiplier = amount deposited / reserve requirement

2500/ 0.05 = $50,000

If the banks decides to keep excess reserves, the money loaned out would be lower and this would reduce money supply