Reserves change by $12 million, and the money supply changes by $60 million. 5 is the simple deposit multiplier equal.
simple deposit multiplier = ΔM/ΔR
= 60/12 = 5
The simple deposit multiplier assumes that banks keep no excess reserves, and households and companies deposit the entire quantity of every take a look at in a financial institution and do not take out any as forex.
The deposit multiplier is also called the deposit enlargement multiplier or the easy deposit multiplier. it's linked to the part of a bank's deposits that may be lent to borrowers. This lending activity injects cash into the state's money delivery and helps financial pastime.
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