A banking system has total deposits of $50 billion and total reserves of $7 billion. If the required reserve ratio is 10%, what is the maximum deposit creation potential of the banking system?
A) $2 billion
B) $14 billion
C) $20 billion
D) $70 billion

Question

Quizplus · Accepted Answer

The required reserves are 10% of $50 billion, which is $5 billion. The excess reserves are $7 billion - $5 billion = $2 billion. The money multiplier is 1/0.10 = 10. Therefore, the maximum deposit creation potential is $2 billion * 10 = $20 billion.

A Banking System Has Total Deposits of $50 Billion and Total