Question

Is the following reasoning correct: If a person deposits $1000 in the bank, suppose the reserve...

Is the following reasoning correct:

If a person deposits $1000 in the bank, suppose the reserve ratio is 10%, which means it will create total loan =$900×10=$9000, and $9000 is the total loan or investment. And we suppose MPC is 0.8, then spending multiplier=5, $9000×5=$45,000, which is the GDP created by the initial $1000 deposit.

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Answer #1

Yes, reasoning is correct. It is explained as following

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