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You take $\$$100 you had kept under your mattress and deposit it in your bank account. If this $\$$100 stays in the banking system as reserves and if banks hold reserves equal to 10 percent of deposits, by how much does the total amount of deposits in the banking system increase? By how much does the money supply increase?

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Chapter 29

The Monetary System

The Data of Macroeconomics

The Real Economy in the Long Run

Money and Prices in the Long Run

Marcelo C.

April 17, 2021

The Fed conducts a $10 million open-market purchase of government bonds. If the required reserve ratio is 10 percent, what are the largest and smallest possible increases in the money supply that could result? Explain.

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question five. You take $100 you had kept under your mattress and deposited into your bank account. And if this 100 are feels days in the banking system has reserves and it banks hold reserves, they go to 10% off deposits. So by how much does the total amount of deposits in the banking system increases increase? And by how much does the money supply increase? Okay, so we draw a TP off first. So first of all, you deposit this. So there's this deposit, this $100 bill into the banking system, right? And the reserve ratio ace 10%. Which means that in the first round, the re runs er is going to be 10% while long here still oh, and is $90. Okay, so this money stays in the banking system. So we can know that if the bank lane, this amount of money to another people and that people also I borrowed this money and then deposited into the bank, it is going to make the deposit 90 others, and then also the bank reserve 10% out of $90 which is nice dollars and then the longest 81. So on and on and on the deposit, the total number of deposit is going to be 100 plus 90. So I will write it down. 100 plus 90 and a plus 90 point 98 point Oh, 0.9, which is 81 and then 81 times 0.9. So the sum of the total deposit is going to bring the sum of all these numbers. So it is going to be one minus 0.9 and ah, numerator is the 100. So the total deposit is going to be 1000. Okay, So the total deposit gained. A banking system increased by $1000 which is so so how much the money supply increase. So by $1000

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