Homework Answers
Answer
It is given that Deposit = 500 and required reserve ratio = 10%. Hence amount bank should hold as reserve(rr) = 10% = 0.10.
Thus amount this bank should hold = 0.10*500 = 50.
From above we can see that he is holding 300(cash) i.e. 250 as excess reserves.
Amount of money created = (1/rr)*250 = (1/0.10)*250 = 2500
Hence, the correct answer is (a) 2,500.
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