Question

Consider the following information about a banking system: new currency deposited in the system = $40 billion, legal reserve ratio = 0.20, excess reserves prior to the currency deposit = $0. The $40 billion deposit of currency into checking accounts will initially create __________.

Answer 1

Answer: The $40 billion deposit of currency into checking accounts will create "$40 billion of new checkable deposits."

Checkable deposits are also known as demand deposit which means that the owner can withdraw without any prior notice.