If your bank faces a 20 percent required reserve ratio and receives a cash deposit of $4,000 into a checkable deposit account, the maximum total amount of money possible after the banking system makes all loans is:

Question

Quizplus · Accepted Answer

The maximum total amount of money created is determined by the money multiplier, which is 1 divided by the reserve ratio (1/0.20 = 5). The initial deposit of $4,000 can lead to a total money creation of $4,000 * 5 = $20,000.

If Your Bank Faces a 20 Percent Required Reserve Ratio