Question

Suppose you win on a scratch‑off lottery ticket and you decide to put all of your $ 3,500 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?

Answer 1

Answer:

$3,325

Explanation:

Reserves are maintained to fulfil the customers withdrawal requirement. It is imposed by the State bank over the Banks to hold a specific percent of cash as reserves. Bank hold the reserves and invest or utilize the residual in the market.

In this question 5% of $3,500 will be reserved and the remaining $3,325 will be available for the money supply in the market in different forms.

the maximum possible increase in the money supply as a result of your bank deposit is $3,325.