In the simple deposit expansion model, if the fed purchases $100 worth of bonds from a bank that previously had no excess reserves, deposits in the banking system can potentially increase by:.

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06-04-2022
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In the simple deposit expansion model, if the fed purchases $100 worth of bonds from a bank that previously had no excess reserves, deposits in the banking system can potentially increase by:.

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Abiolataiwo2015idn Abiolataiwo2015idn · Answer 1 · 2022-04-11T04:43:47-04:00

Assuming the bank that previously had no excess reserves, deposits in the banking system can potentially increase by: $100 times the reciprocal of the required reserve ratio.

What is required reserve ratio?

Required reserve ratio can be defined as the part of deposit that is expected of a bank to have as a reserves.

Based on the given information if the fed purchases $100 worth of bonds from a bank that had no excess reserves the deposit will tend to increase by $100 mutilply by the required reserve ratio.

Inconclusion the deposit will increase by $100 times the reciprocal of the required reserve ratio.

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What is required reserve ratio?

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