Question

You just deposited $4,000 in cash into a checking account at the local bank. Assume that banks lend out all excess reserves and there are no leaks in the banking system. That is, all money lent by banks gets deposited in the banking system. Round your answers to the nearest dollar. If the reserve requirement is 20 %, how much will your deposit increase the total value of checkable bank deposits

Answer 1

Answer: $20,000

Step-by-step explanation:

The reserve requirement is a central bank regulation which sets minimum amount of reserves which must be held by a commercial bank.

When reserve requirement = 20%

= 20/100

= 0.20

Total increase in the checkable deposit will be = $4,000 / 0.20= $20,000