Exhibit 19-7 Lower Walloon National Bank

-In Exhibit 19-7,if the required reserve ratio is 20 percent for all banks,and every bank in the banking system loans out all of its excess reserves.Then a $10,000 deposit from Mr.Brown in checkable deposits could create for the entire banking system:

Question

Exhibit 19-7 Lower Walloon National Bank
 
-In Exhibit 19-7,if the required reserve ratio is 20 percent for all banks,and every bank in the banking system loans out all of its excess reserves.Then a $10,000 deposit from Mr.Brown in checkable deposits could create for the entire banking system:

Quizplus · Accepted Answer

The money multiplier is 1/required reserve ratio, which is 1/0.20 = 5. The initial deposit of $10,000 can create $10,000 * 5 = $50,000 in total deposits, but since $10,000 is the initial deposit, the new money created is $50,000 - $10,000 = $40,000.