Question:

Is the following reasoning correct:

If a person deposits $1000$1000 in the bank, suppose reserve ratio is 1010%, that means it will create total loan =$900×10=$9000=$900×10=$9000, and $9000$9000 is the total loan or investment. And we suppose MPC is 0.80.8, then spending multiplier=5,$9000×5=$45,000=5,$9000×5=$45,000, which is the GDP created by the initial $1000$1000 deposit.

Explain.

Answer rating: 100% (QA)

Answer Yes the reasoning is correct It is explained as foll... View the full answer