Use the following example to answer the following questions:
Imagine that Stella deposits $25,000 in currency (which she had been storing in her closet)into her checking account at the bank.Assume that this institution has a required reserve ratio of 25 percent.
-As a result of this deposit,what is the maximum amount in loans that can be made by all the banks in the banking system?
A) $0
B) $18,750
C) $25,000
D) $31,250
E) $100,000

Question

Quizplus · Accepted Answer

The maximum amount of loans that can be made is determined by the money multiplier, which is 1 divided by the reserve ratio (1/0.25 = 4). The initial deposit of $25,000 can thus support a maximum of $25,000 x 4 = $100,000 in loans throughout the banking system.

Use the Following Example to Answer the Following Questions