he Central Bank requires banks to maintain a 10% legal minimum reserve requirement of their deposits, banks lend out all their excess reserves, and deposits stay within banking institutions and are not withdrawn into currency circulation. When Terry received a cash gift of $20,000 that she deposited into her checkable deposit account, what was the full effect on money supply M1? A. increased by $2,000 B. increased by $20,000 C. increased by $200,000 D. cannot be determined E. no change in M1

Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter21: The Monetary System
Section: Chapter Questions
Problem 2CQQ
icon
Related questions
Question

The Central Bank requires banks to maintain a 10% legal minimum reserve requirement of their deposits, banks lend out all their excess reserves, and deposits stay within banking institutions and are not withdrawn into currency circulation. When Terry received a cash gift of $20,000 that she deposited into her checkable deposit account, what was the full effect on money supply M1?

A. increased by $2,000

B. increased by $20,000

C. increased by $200,000

D. cannot be determined

E. no change in M1

Expert Solution
steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Inflation and Unemployment
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Essentials of Economics (MindTap Course List)
Essentials of Economics (MindTap Course List)
Economics
ISBN:
9781337091992
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Brief Principles of Macroeconomics (MindTap Cours…
Brief Principles of Macroeconomics (MindTap Cours…
Economics
ISBN:
9781337091985
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Principles of Macroeconomics (MindTap Course List)
Principles of Macroeconomics (MindTap Course List)
Economics
ISBN:
9781305971509
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Principles of Economics 2e
Principles of Economics 2e
Economics
ISBN:
9781947172364
Author:
Steven A. Greenlaw; David Shapiro
Publisher:
OpenStax
Economics: Private and Public Choice (MindTap Cou…
Economics: Private and Public Choice (MindTap Cou…
Economics
ISBN:
9781305506725
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning