If the reserve ratio for all banks is 8 percent,then $4,500 of additional reserves can create up to

Question

Quizplus · Accepted Answer

The formula for the maximum amount of new money that can be created is M = (1/rr) x AR, where M is the maximum amount of new money, rr is the reserve ratio, and AR is the amount of additional reserves. Plugging in the given numbers, we get M = (1/0.08) x 4,500 = $56,250. Thus, the correct answer is choice C.

If the Reserve Ratio for All Banks Is 8 Percent,then