You deposit $4,000 in currency in your checking account. The bank holds 20 percent of all deposits as desired reserves. As a direct result of your deposit, your bank will create
A) $3,200 of new money.
B) $200 of new money.
C) $1,600 of new money.
D) $800 of new money.

Question

Quizplus · Accepted Answer

The bank holds 20% of $4,000 as reserves, which is $800. The remaining $3,200 can be loaned out, creating $3,200 of new money.

You Deposit $4,000 in Currency in Your Checking Account