With NO cash drain to the public, the banking system as a whole can create deposit money whenever it receives new deposits. Use the following notation to identify the correct formula to calculate the total change in deposits after a new injection of cash into the banking system.

Upper Delta

Deposits total change in deposits

New Deposit new cash injection to the banking system

Upper Delta

Reserves change in fraction of deposit liabilities

c cash to deposits ratio

v reserve to deposit ratio

(A)

Upper Delta

Deposits = StartFraction Upper Delta Reserves Over v EndFractionReservesv

(B)

Upper Delta

Deposits = StartFraction v Over New Deposit EndFractionvNewDeposit

(C)

Upper Delta

Deposits = StartFraction New Deposit Over v EndFractionNewDepositv

Question content area bottom

Part 1

A.

(A) only

B.

(B) only

C.

(C) only

D.

(A) and (B)

E.

(A) and (C)

c cash to deposits ratiovreserve to deposit ratio(A) Deposits = StartFraction Upper Delta Reserves Over v EndFraction(B) Deposits = StartFraction v Over New Deposit EndFraction(C) Deposits = StartFraction New Deposit Over v EndFraction