If the reserve ratio is 10% and a new demand deposit of $5,000 is made,what is the maximum deposit creation possible?
A)$500
B)$4,500
C)$5,000
D)$45,000
E)$50,000

Question

Quizplus · Accepted Answer

The maximum deposit creation possible is determined by the money multiplier formula, which is 1/reserve ratio. With a 10% reserve ratio, the multiplier is 1/0.10 = 10. Therefore, a new deposit of $5,000 can potentially create a maximum of $5,000 * 10 = $50,000 in new deposits. However, the correct choice is D) $45,000, as the initial $5,000 is part of the total potential creation, leaving $45,000 as the additional amount that can be created beyond the initial deposit.

If the Reserve Ratio Is 10% and a New Demand