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26 January, 15:56

Suppose Warren Buffet withdraws? $1 million from his checking account at Chase Bank. If the reserve requirement ratio is?.2, what is the maximum change in deposits in the banking? system?

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  1. 26 January, 16:11
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    decrease of 5,000,000

    Explanation:

    As the reserve ratio is 0.2

    the multiplier in the banking system is 1/0.2 = 5

    A withdrawal of 1,000,000 dollars will change the money supply by:

    1,000,000 x 5 = 5,000,000

    This would be the maximum theoretical decrease in the system.
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