While Jon is walking to school one morning, a helicopter flying overhead drops a $100 bill. Not knowing how to return it, Jon keeps the money and deposits it in his bank. (No one in this economy holds currency.) If the bank keeps 5 percent of its money in reserves:
Instructions: Enter your answers as whole numbers.
a. How much money can the bank initially lend out?
b. After this initial transaction, by how much is the money in the economy changed?
c. What’s the money multiplier?
d. How much money will eventually be created by the banking system from Jon’s $100?