Assuming all excess reserves are loaned out, currency holdings by the public are zero, and a reserve ratio of 5 percent, an initial deposit of $10,000 will lead to a total increase in deposits of
A) $500.
B) $10,000.
C) $50,000.
D) $200,000.

Question

Quizplus · Accepted Answer

The initial deposit of $10,000 will be loaned out, creating $10,000 in new deposits. This process will continue, with each new deposit creating an equal amount of new deposits, until the total increase in deposits reaches $200,000.

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