A Hong Kong bank faces a sudden withdrawal of HK$200 million in deposits. With a required reserve ratio of 8% and no excess reserves initially, the maximum potential contraction of M3 is:

解說

Money multiplier = 1/0.08 = 12.5. Initial reserve loss = HK$200m × 8% = HK$16m? No — the full HK$200m deposit withdrawal reduces reserves by HK$200m (bank must pay out). Contraction = HK$200m × 12.5 = HK$2.5bn. (Deposit multiplier works in reverse.)