A banking system has total deposits of $500 billion and total reserves of $140 billion. If the required reserve ratio is 20%, what is the deposit creation potential of the banking system?
A) $280 billion
B) $500 billion
C) $140 billion
D) $200 billion

Question

Quizplus · Accepted Answer

The required reserves are 20% of $500 billion, which is $100 billion. The excess reserves are $140 billion - $100 billion = $40 billion. The deposit creation potential is the excess reserves divided by the reserve ratio, which is $40 billion / 0.20 = $200 billion.

A Banking System Has Total Deposits of $500 Billion and Total