Assuming all excess reserves are loaned out, currency holdings by the public are zero, and a reserve ratio of 20 percent, an initial deposit of $850 will lead to total deposits of
A) $425.
B) $850.
C) $4,250.
D) $42,500.

Question

Quizplus · Accepted Answer

Total deposits will equal the initial deposit multiplied by the money multiplier. Money multiplier is 1/required reserve ratio.
Money multiplier = 1/0.2 = 5
Total deposits = $850 x 5 = $4,250.

Assuming All Excess Reserves Are Loaned Out, Currency Holdings by the Public