Suppose the reserve requirement ratio is 20 percent. Assuming no bank holds excess reserves and nobody withdraws cash, a $10,000 injection of new excess reserves by the Fed can create

A) $2,000 in new checkable deposits
B) $10,000 in new checkable deposits
C) $50,000 in new checkable deposits
D) $500,000 in new checkable deposits
E) $50,000 in cash

50000

To determine the impact of a $10,000 injection of new excess reserves by the Fed on the creation of new checkable deposits, we need to understand how the reserve requirement ratio works.

The reserve requirement ratio is the percentage of deposits that banks are required to hold in reserve (either as cash in their vaults or as deposits in their accounts with the central bank). In this case, the reserve requirement ratio is 20 percent, meaning that banks are required to hold 20 percent of their deposits in reserve.

To calculate the impact of an injection of new excess reserves, we can use the following formula:

Change in Checkable Deposits = (Injection of Excess Reserves / Reserve Requirement Ratio)

Using this formula, we can find the answer to the question:

Change in Checkable Deposits = ($10,000 / 0.20) = $50,000

Therefore, the correct answer is C) $50,000 in new checkable deposits.

To determine the impact of a $10,000 injection of new excess reserves by the Fed, we need to consider the reserve requirement ratio and the deposit multiplier.

The reserve requirement ratio is the percentage of deposits that banks are required to hold as reserves. In this case, the reserve requirement ratio is given as 20 percent.

The deposit multiplier is the inverse of the reserve requirement ratio and represents the maximum amount of new checkable deposits that can be created by a given injection of excess reserves. It can be calculated using the formula:

Deposit Multiplier = 1 / Reserve Requirement Ratio

In this case, the deposit multiplier would be:

Deposit Multiplier = 1 / 0.20 = 5

Therefore, for every $1 of excess reserves injected, up to $5 of new checkable deposits can be created.

To determine the impact of a $10,000 injection, we multiply the injection amount by the deposit multiplier:

$10,000 x 5 = $50,000

Therefore, a $10,000 injection of new excess reserves can create $50,000 in new checkable deposits.

So, the correct answer is C) $50,000 in new checkable deposits.