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Macroeconomics

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Moderate

Money Creation Process with Cash Drain

MACRO-E6HYV1

Suppose the Canadian banking system received a new deposit of $\$1{,}200$ and all commercial banks have a reserve ratio ($r$) of $12$ percent. What will be the total change in deposits assuming all banks will fully loan-up and that the ratio of cash to deposits ($d$) is fixed at $0.08$. Thus, if total deposits increase by $\$1{,}000$, then $\$80$ will be held in cash. Which of the following correctly states the total change in demand deposits as a result of the new deposit?

A

$\$30{,}000$

B

$\$8{,}000$

C

$\$6{,}000$

D

$\$15{,}000$