If D equals the maximum amount of new demand-deposit money that can be created by the banking system on the basis of any given amount of excess reserves;E equals the amount of excess reserves;and m is the money multiplier,then we can say that:

Question

Quizplus · Accepted Answer

The formula for calculating the maximum amount of new demand-deposit money that can be created by the banking system on the basis of any given amount of excess reserves is D = E × m, where E is the amount of excess reserves and m is the money multiplier. Therefore, option B is the correct choice. Option A and D are not correct because they reverse the formula. Option C is incorrect as it does not include the money multiplier.

If D Equals the Maximum Amount of New Demand-Deposit Money