Assuming all excess reserves are loaned out, currency holdings by the public are zero, and a reserve ratio of 2 percent, an initial deposit of $500 will lead to a total increase in deposits of
A) $250.
B) $5,000.
C) $25,000.
D) $50,000.

Question

Quizplus · Accepted Answer

With a reserve ratio of 2%, the money multiplier is 1/0.02 = 50. An initial deposit of $500 will lead to a total increase in deposits of $500 * 50 = $25,000.

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