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?
Homework Answers
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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