Refer to the information below.When the desired reserve ratio is 10 percent, the money creating potential of this single bank is:
A)zero dollars.
B)$6,000
C)$30,000
D)$60,000

Question

Refer to the information below.When the desired reserve ratio is 10 percent, the money creating potential of this single bank is: 
A)zero dollars. 
B)$6,000 
C)$30,000 
D)$60,000

Quizplus · Accepted Answer

The money creating potential of a single bank can be calculated by dividing the amount of deposits by the reserve ratio. In this case, if the desired reserve ratio is 10%, the bank can create 10 times the amount of its excess reserves. The excess reserves can be calculated as the difference between deposits and required reserves. If the deposits are $60,000, 10% of that is $6,000, which is the required reserves. Therefore, the excess reserves are $54,000 and the money creating potential of the bank is 10 times that, equaling $540,000. Therefore, the correct answer is B.

Refer to the Information Below