After the central bank increases reserves in the banking system through open-market purchases,banks create new deposits through multiple rounds of lending and accepting deposits until the
A) central bank requires them to stop.
B) reserve-deposit ratio reaches one-half.
C) actual reserve-deposit ratio is greater than the desired reserve-deposit ratio.
D) actual reserve-deposit ratio is equal to the desired reserve-deposit ratio.
E) actual reserve-deposit ratio is less than the desired reserve-deposit ratio.

Question

Quizplus · Accepted Answer

Banks continue to lend and create deposits until the actual reserve-deposit ratio equals the desired reserve-deposit ratio, at which point they have no excess reserves to lend out.

After the Central Bank Increases Reserves in the Banking System