Refer to the information provided in Scenario 25.2 below to answer the question(s) that follow.
SCENARIO 25.2: The following table shows the changes in deposits, reserves, and loans of 4 banks as a result of a $100,000 initial deposit in Bank No. 1. Assume all banks are loaned up.
-Refer to Scenario 25.2. How much money will be created based on the initial $100,000 deposit?

Question

Refer to the information provided in Scenario 25.2 below to answer the question(s) that follow.
SCENARIO 25.2: The following table shows the changes in deposits, reserves, and loans of 4 banks as a result of a $100,000 initial deposit in Bank No. 1. Assume all banks are loaned up. 
-Refer to Scenario 25.2. How much money will be created based on the initial $100,000 deposit?

Quizplus · Accepted Answer

The money multiplier effect allows banks to create money through lending. Assuming a reserve requirement of 10%, the money multiplier is 1/0.10 = 10. Therefore, an initial deposit of $100,000 can create $100,000 x 10 = $1 million in the banking system.

Refer to the Information Provided in Scenario 25