Answer:
GDP will increase by :
GDP increase = $5 billion * 2
= $10 billion
The impact on GDP given the scenario is that through the $500 million bank deposit alone, the GDP will increase by $10 billion.
Explanation:
a) Data and Calculations:
Bank deposits = $500 million
Current reserve ratio = 10%
Velocity of money = 2
Money supply by this bank deposit = Deposit/reserve ratio
= $500 million/0.1
= $5 billion
Therefore, impact on GDP:
GDP will increase by = $5 billion * 2
= $10 billion
b) The Velocity of money measures the rate at which money is exchanged in the US economy. It is calculated by dividing GDP by the money supply.
