Question

Suppose you deposit ​$1400 cash into your checking account. By how much will checking deposits in the banking system increase as a result when the required reserve ratio is 0.11​0? The change in checking deposits is equal​ to: ​$nothing ​(enter your result rounded to the nearest dollar​).

Answer 1

The rounded nearest dollar is $\ 12727.27$

Solution:

Deposit multiplier is a feature that explains how much money banks create when they loan money to borrowers.  

The sum for the banks to lend is the amount of money kept by the banks above the appropriate balance.

It is the key element of a fractional banking reserve system.

Banks in the United States must meet Federal Reserve minimum requirements, but they can set higher deposits multiplier.

Change in deposit = $\ 1400$

RRR = 0.110

Change in the Money supply = (Change in the Monetary base) $\times$ (Money multiplier)

Money multiplier= $1 \div \text{ reserve ratio }=\frac{1}{0.110}=9.091$

Change in money supply= $1400\times9.091= \ 12727.273$ that is approximately 12727.27 dollars.