Use the following balance sheet for XYZ Bank,which is one of many banks in a banking system.
Table 13.1-XYZ Bank balance sheet
-Refer to Table 13.1.With total reserves of $50,000 and a required reserve ratio of 10 percent,potential deposit creation for the banking system is equal to:
A) $20,000.
B) $50,000.
C) $80,000.
D) $300,000.

Question

Use the following balance sheet for XYZ Bank,which is one of many banks in a banking system.
Table 13.1-XYZ Bank balance sheet 
-Refer to Table 13.1.With total reserves of $50,000 and a required reserve ratio of 10 percent,potential deposit creation for the banking system is equal to:
A) $20,000. 
B) $50,000. 
C) $80,000. 
D) $300,000.

Quizplus · Accepted Answer

The potential deposit creation for the banking system can be calculated using the money multiplier formula, which is 1/required reserve ratio. With a required reserve ratio of 10 percent (or 0.10), the money multiplier is 1/0.10 = 10. Therefore, with total reserves of $50,000, the potential deposit creation is $50,000 * 10 = $500,000. However, since this option is not available, and considering the context of the question, it seems there might be a misunderstanding in the transcription of the options or the calculation. Typically, with a 10% reserve requirement, the potential increase in deposits is indeed calculated as $50,000 * 10, which would ideally equal $500,000, suggesting a possible typo in the options or the question's premise. Given the options, D) $300,000 is the closest to the concept of maximum potential deposit creation, albeit not mathematically accurate per the given numbers.

Use the Following Balance Sheet for XYZ Bank,which Is One