If people never withdrew money, how much money could the banking system create given a new amount of deposits, assuming that excess reserves were zero?

Question

Quizplus · Accepted Answer

The money multiplier indicates how much money the banking system can create with each unit of deposits. If people never withdraw money, the banking system can potentially create an amount of money equal to the new deposits multiplied by the money multiplier, since there would be no limit to the potential expansion of loans and deposits. The reserve ratio would not be a limiting factor in this case since excess reserves would be zero. Therefore, the correct answer is D.

If People Never Withdrew Money, How Much Money Could the Banking