The maximum amount by which the entire banking system can create money is equal to:

Question

Quizplus · Accepted Answer

The maximum amount by which the entire banking system can create money is equal to a multiple of its excess reserves. This is because banks are required to hold a fraction of their deposits as reserves, either required reserves or excess reserves. The money creation process occurs when banks lend out their excess reserves, and these loans lead to the creation of new deposits. As long as banks have excess reserves, they can continue to create new money through lending. Therefore, the maximum amount of money that can be created by the banking system is a multiple of its excess reserves.

The Maximum Amount by Which the Entire Banking System Can