If a bank receives a new deposit of $10,000, and the required reserve ratio is 25 percent, then the new money that can be created by the banking system, including the initial deposit, is:
A) $25,000.
B) $2,500.
C) $4,000.
D) $40,000.

Question

Quizplus · Accepted Answer

The new money that can be created is calculated using the money multiplier formula, which is 1 / required reserve ratio. In this case, it's 1 / 0.25 = 4. Therefore, the total new money that can be created, including the initial deposit, is $10,000 * 4 = $40,000.

If a Bank Receives a New Deposit of $10,000, and the Required