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QUESTION
Assume that Jill deposits $20,000 in cash into her checking account at Welcome National Bank and the central bank has set a required reserve ratio of...
Assume that Jill deposits $20,000 in cash into her checking account at Welcome National Bank and the central bank has set a required reserve ratio of 10%.
- Explain the immediate effect of her deposit on the M1 measure of the money supply.
- If Welcome National Bank holds an additional 10% of her deposit in reserves, calculate the following:
- the maximum amount the bank will loan out
- the maximum increase in the money supply as a result of this transaction
- (Calculate means show your work on the AP exam.)
