Question

After saving money in his piggy bank for three years, omar decided to deposit $2,500 of the money in the local bank. if the bank were fully loaned out and the reserve requirement was 20 percent, then the change in the dollar value of the total money supply would be

Answer 1

If 20% of the deposits are used as a bank reserve, that means that only $ 500 stays in the bank's coffers while the remaining, that is, $ 2000 goes to the money supply, and begins to circulate as loans or any other banking product. The money supply is measured from the monetary aggregates.