Suppose you win on a scratch-off lottery ticket and you decide to put all of you

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 10%. How much maximum of new money will be created (maximum amount of new checking deposits created by the banking system) as a result of your bank deposit? Hint: do not count your initial deposit as part of increase Incorrect. The bank can only loan out excess reserves. Calculate the excess reserves after the lottery winnings were deposited than multiple that number by the money multiplier. Number $35000 Which events could cause the increase in the money supply to be less than its potential? Check all that apply. Some loan recipients choose to hold some cash instead of depositing all of it in banks. Banks choose to loan out all excess reserves. Banks decide to keep some excess reserves on hand. All money loaned out is deposited back into the banking system

Explanation / Answer

Answer to the blank: $31,500

Explanation:

Reserve requirement = 3500 * 0.1 = 350

Excess reserve = 3500 - 350 = $3150

Money multiplier = 1 / RR = 1 / 0.1 = 10

New money created = 3150 * 10 = $31,500

Ans:

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