Suppose Diego deposits $4,000 in his bank. If the reserve ratio is 10 percent, this will lead to a maximum increase of ________ in checking account balances throughout all banks..
A) $0
B) $4,000
C) $10,000
D) $40,000

Question

Quizplus · Accepted Answer

The maximum increase in checking account balances is determined by the money multiplier, which is the reciprocal of the reserve ratio. With a reserve ratio of 10%, the money multiplier is 1/0.10 = 10. Therefore, the maximum increase is $4,000 * 10 = $40,000.

Suppose Diego Deposits $4,000 in His Bank