Suppose a bank operates in a country with a 20 percent reserve requirement, and someone deposits $4,000 into a savings account. Including the deposit, how much money has been created in this economy?
A) $20,000
B) $3,200
C) $4,800
D) $9,500

Question

Quizplus · Accepted Answer

The bank can lend out $3,200 (80% of $4,000) from the deposit. The money multiplier is 1/reserve ratio = 1/0.20 = 5. Thus, the total money created is $4,000 * 5 = $20,000, including the initial deposit.

Suppose a Bank Operates in a Country with a 20