The following are simplified consolidated balance sheets for the chartered banking system and the Bank of Canada.Do not cumulate your answers; that is, do return to the data given in the original balance sheets in answering each question.Assume a desired reserve ratio of 5 percent for the chartered banks.All figures are in billions of dollars.CONSOLIDATED BALANCE SHEET: CHARTERED BANKING SYSTEM BALANCE SHEET: BANK OF CANADA
Refer to the above information.The maximum money-creating potential of the chartered banking system is:
A)$5
B)$19
C)$20
D)$0

Question

The following are simplified consolidated balance sheets for the chartered banking system and the Bank of Canada.Do not cumulate your answers; that is, do return to the data given in the original balance sheets in answering each question.Assume a desired reserve ratio of 5 percent for the chartered banks.All figures are in billions of dollars.CONSOLIDATED BALANCE SHEET: CHARTERED BANKING SYSTEM  BALANCE SHEET: BANK OF CANADA
 Refer to the above information.The maximum money-creating potential of the chartered banking system is:
A)$5 
B)$19 
C)$20 
D)$0

Quizplus · Accepted Answer

The maximum money-creating potential of the chartered banking system is equal to the excess reserves held by the system, which is calculated as total reserves minus required reserves. The total reserves are given as $21 billion and the required reserves are calculated as 5% of total deposits which are $17 billion. Therefore, excess reserves are $4 billion. As the money-creating potential is equal to the excess reserves, the answer would be $4 billion or option C.

The Following Are Simplified Consolidated Balance Sheets for the Chartered