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A US Bank has $500 million in deposits. The current reserve ratio is 10%. Velocity of money is 2. What is the impact on GDP

User Akohout
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Answer:

GDP will increase by :

GDP increase = $5 billion * 2

= $10 billion

The impact on GDP given the scenario is that through the $500 million bank deposit alone, the GDP will increase by $10 billion.

Step-by-step explanation:

a) Data and Calculations:

Bank deposits = $500 million

Current reserve ratio = 10%

Velocity of money = 2

Money supply by this bank deposit = Deposit/reserve ratio

= $500 million/0.1

= $5 billion

Therefore, impact on GDP:

GDP will increase by = $5 billion * 2

= $10 billion

b) The Velocity of money measures the rate at which money is exchanged in the US economy. It is calculated by dividing GDP by the money supply.

User Achal Naskar
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