A US Bank has $500 million in deposits. The current reserve ratio is 10%. Velocity of money is 2. What is the impact on GDP

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.

answer; descriptive statistics;