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Basic Question 5 of 13
Suppose that the reserve ratio is 0.2 and that banks loan out all their excess reserves. If a person deposits $100 cash in a bank, checking account balances will increase by ______.
User Contributed Comments 7
| User | Comment |
|---|---|
| cbb1 | Checking account balances increase by $500, but the money supply (M1) only increases by $400. |
| danlan | Understand the difference between checking account balance change and money supply change |
| sarath | what is checking account balance? |
| chamad | When you open a day to day account (for deposit and withrawal purposes)it's called a chequing account. Checquing account balance is the balance available in chequing account. It"s different than saving account. Generally saving is for the long run sometimes for the short run (exp emergency fund) |
| bundy | its a money multiplier question. they don't specify a in the monely multipier equation so the numeraor is 1. they lend all excess so b = .2 so the denonimator is .2 |
| YOUCANDOIT | nice point cbb1 |
| something | cbb1: If cash is already part of M1, then how come cash deposit to checking ( part of M1) increases M1 money supply? I get the point that Money mutiplier is 5, therefore checking account increases by 500 and money supply increases too. But some doubtful about the source of money..Alternatively what happens when cash moves between two checking accounts? |
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Learning Outcome Statements
describe tools used to implement monetary policy tools and the monetary transmission mechanism, and explain the relationships between monetary policy and economic growth, inflation, interest, and exchange rates
CFA® 2025 Level I Curriculum, Volume 1, Module 4.