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19 November, 00:25

Suppose warren buffet withdraws $1 million from his checking account at chase manhattan bank. if the required reserve ratio is 20 percent, what is the maximum change in deposits in the banking system?

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  1. 19 November, 00:31
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    -$5 million

    Explanation:

    In this question, we are asked to calculate the maximum change in banking system deposits as a result of a withdrawal.

    mathematically;

    change in checking deposits = Change in Reserves * 1/Reserve Requirement

    From the question, the reserve requirement is 20% = 20/100 = 0.2

    The change is thus - 1 million * 1/0.2

    -1 million * 5 = - $5 million
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