If the required reserve ratio is 10 percent,a $100 deposit will ultimately allow the banking system to create how much money?

Question

Quizplus · Accepted Answer

If the required reserve ratio is 10 percent, then the bank must keep $10 as reserves and can lend out $90. When that $90 is deposited into another bank, that bank must keep $9 as reserves and can lend out $81. This process repeats, with each bank keeping 10 percent as reserves and lending out 90 percent. Using the formula for calculating the total money creation in a banking system, we get:
$100 deposit / 0.10 reserve ratio = $1,000 total money creation. Therefore, the banking system can ultimately create $1,000 in money from the initial $100 deposit.

If the Required Reserve Ratio Is 10 Percent,a $100 Deposit