If the reserve requirement is 2.5% and a bank initially receives $30,000 in deposits from the Fed, then the maximum amount of money that the banking system can create is:
A) $750.
B) $1,500.
C) $30,000.
D) $1.2 million.

Question

Quizplus · Accepted Answer

The money multiplier is 1 divided by the reserve requirement (1/0.025 = 40). The maximum amount of money that can be created is the initial deposit multiplied by the money multiplier ($30,000 * 40 = $1.2 million).

If the Reserve Requirement Is 2