The following is information about a banking system: New currency deposited in the system = $40 billion; desired reserve ratio = 20%;
Excess reserves prior to the currency deposit = $0.Refer to the above information.The $40 billion deposit of currency into chequing accounts will initially create:
A)$8 billion of new demand deposits.
B)$10 billion of new demand deposits.
C)$40 billion of new demand deposits.
D)$160 billion of new demand deposits.

Question

Quizplus · Accepted Answer

The initial deposit of $40 billion will create $40 billion of new demand deposits as it is the amount deposited into the banking system.

The Following Is Information About a Banking System: New Currency