Question

Suppose warren buffet withdraws $1 million from his checking account at chase manhattan bank. if the required reserve ratio is 20 percent, what is the maximum change in deposits in the banking system?

Answer 1

-$5 million

Step-by-step explanation:

In this question, we are asked to calculate the maximum change in banking system deposits as a result of a withdrawal.

mathematically;

change in checking deposits = Change in Reserves * 1/Reserve Requirement

From the question, the reserve requirement is 20% = 20/100 = 0.2

The change is thus -1 million * 1/0.2

-1 million * 5 = -$5 million