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 calculated by finding the excess reserves, which is the actual reserves minus the required reserves. The required reserves can be calculated by multiplying the total deposits ($400) by the desired reserve ratio (5%, or 0.05), which is $20. Therefore, the excess reserves are $4. Subtracting the excess reserves from the total deposits gives us the maximum money-creating potential, which is $20 ($400 - $20 - $4).

The Following Are Simplified Consolidated Balance Sheets for the Chartered