Table 9-6: Deposit Expansion Stages
In Table 9-6, assume that banks loan out 100% of their excess banking reserves, there are no cash withdrawals, and all loan proceeds are spent. Figures have been rounded up to the nearest whole number.
-Refer to Table 9-6. What is the value of the deposit multiplier?
A) 0.1
B) 0.2
C) 1
D) 5

Question

Table 9-6: Deposit Expansion Stages
  In Table 9-6, assume that banks loan out 100% of their excess banking reserves, there are no cash withdrawals, and all loan proceeds are spent. Figures have been rounded up to the nearest whole number.
-Refer to Table 9-6. What is the value of the deposit multiplier?
A) 0.1 
B) 0.2 
C) 1 
D) 5

Quizplus · Accepted Answer

The deposit multiplier is the inverse of the reserve requirement ratio. If the reserve requirement is 20%, the deposit multiplier is 1/0.2 = 5.