First National Bank is fully loaned up. The reserve ratio is 20%. Households deposit $10,000 in...

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First National Bank is fully loaned up. The reserve ratio is 20%. Households deposit $10,000 in...

First National Bank is fully loaned up. The reserve ratio is 20%. Households deposit $10,000 in currency into the bank. How what is the maximum amount of new money that can be created in the banking system?

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Answer 1

Answer #1

Reserve ratio = 20%

Household deposit = $ 10,000

Money multiplier can be determined using the following formula

Maximum increase in money that can be created in the banking system = 5 × 10,000 = $ 50,000

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Answer 2

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