Suppose you win on a scratch‑off lottery ticket and you decide to put all of your $2,500 winnings in the bank. The reserve requirement is 5% . What is the maximum possible increase in the money supply as a result of your bank deposit?

$50,000

Explanation:

Reserve Requirement = 5% = 0.05

Change in reserves = $2500

The change in deposits is denoted as

= (1/rr) × change in reserves

where,

rr = reserve requirements

Change in deposits will now be:

= (1/rr) × change in reserves

= 1/0.05 × 2500

= 20 × 2500

= $50,000

Therefore, the maximum possible increase in the money supply as a result of your bank deposit will be $50,000.