-The table above represents a bank's T-account.Suppose it is the only bank in town and individuals in town hold no cash.Assuming the reserve ratio is 10%,what will be the bank's deposits and reserves at the end of the money creation process?
A) Deposits will equal $200,000 and reserves will equal $20,000.
B) Both deposits and reserves will equal $200,000.
C) Deposits will equal $2,000,000 and reserves will equal $200,000.
D) Both deposits and reserves will equal $2,000,000.
E) Both deposits and reserves will equal $2,200,000.

Question

-The table above represents a bank's T-account.Suppose it is the only bank in town and individuals in town hold no cash.Assuming the reserve ratio is 10%,what will be the bank's deposits and reserves at the end of the money creation process?
A) Deposits will equal $200,000 and reserves will equal $20,000. 
B) Both deposits and reserves will equal $200,000. 
C) Deposits will equal $2,000,000 and reserves will equal $200,000. 
D) Both deposits and reserves will equal $2,000,000. 
E) Both deposits and reserves will equal $2,200,000.

Quizplus · Accepted Answer

The money multiplier is 1/reserve ratio, which is 10. If the initial deposit is $200,000, the total deposits will be $200,000 * 10 = $2,000,000. Reserves will be 10% of $2,000,000, which is $200,000.

-The Table Above Represents a Bank's T-Account