If D equals the maximum amount of new demand-deposit money that can be created by the banking system on the basis of any given amount of excess reserves; E equals the amount of excess reserves; and m is the money multiplier, then we can say that:
A)m = E/D.
B)D = E * m.
C)D = E - 1/m.
D)D = m/E.

Question

Quizplus · Accepted Answer

The formula for maximum amount of new demand-deposit money that can be created is D = E x (1/required reserve ratio) x money multiplier or D = E x (1/rr%) x m. Option B is the closest to this formula, but with some errors in formatting. It should be D = E x (1/rr%) x m.

If D Equals the Maximum Amount of New Demand-Deposit Money