Money supply
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You take $100 that you had kept under your mattress and deposit it into your bank account. If this $100 stays in the banking system as reserves and if the 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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Solution Summary
Money supply growth is assessed.
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Money supply will grow as per the deposit multiplier. This is calculated as follows:
Deposit multiplier= M = 1 / r
where M = ...
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