Assuming the bank that previously had no excess reserves, deposits in the banking system can potentially increase by: $100 times the reciprocal of the required reserve ratio.
What is required reserve ratio?
Required reserve ratio can be defined as the part of deposit that is expected of a bank to have as a reserves.
Based on the given information if the fed purchases $100 worth of bonds from a bank that had no excess reserves the deposit will tend to increase by $100 mutilply by the required reserve ratio.
Inconclusion the deposit will increase by $100 times the reciprocal of the required reserve ratio.
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