Answer the question on the basis of the following information about a banking system: new currency deposited in the system = $40 billion;legal reserve ratio = 0.20;excess reserves prior to the currency deposit = $0. Refer to the information.The $40 billion deposit of currency into checking accounts will initially create:
A) $8 billion of new checkable deposits.
B) $10 billion of new checkable deposits.
C) $40 billion of new checkable deposits.
D) $200 billion of new checkable deposits.

Question

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The initial deposit of $40 billion will create $40 billion of new checkable deposits, as the deposit itself is the initial creation of checkable deposits before any further money creation through the banking system's lending process.

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