You just received a bonus at your job of $4,000 which you decide to put in a sav

Question

You just received a bonus at your job of $4,000 which you decide to put in a saving account at the local bank. Assume that banks lend out all excess reserves and there are no leaks in the banking system. That is, all money lent by banks gets deposited in the banking system Round your answers to the nearest dollar. If the reserve requirement is 16%. how much will your deposit increase the total value of checkable bank deposits If the reserve requirement is 6%, how much will your deposit increase the total value of checkable deposits

Explanation / Answer

1. If RR = 16%. Multiplier = 1/RR = 1/0.16 = 6.25. So, the total value of checkable deposit = 4000 * 6.25 = $25,000

2. If RR = 6%. Multiplier = 1/RR = 1/0.06 = 16.67. So, the total value of checkable deposit = 4000 * 16.67 = $66,680

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