Assume that Bank One receives a primary deposit of $200,000. The bank must keep 20% against...

Question

Question

Assume that Bank One receives a primary deposit of $200,000. The bank must keep 20% against its deposits. What is the maximum deposit expansion?

Answer 1

Answer #1

MAXIMUM DEPOSIT EXPANSION = PRIMARY DEPOSIT/RESERVE RATIO

MAXIMUM DEPOSIT EXPANSION = 200000/0.20 = 1000000

It is also known as maximum credit creation by banks.

Answer : 1000000 [Thumbs up please]

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Answer 2

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