Following a new deposit of $50 when the desired reserve ratio is 10 percent,the maximum increase in the assets of commercial banks will be

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When the desired reserve ratio is 10 percent, a new deposit of $50 allows banks to lend out 90% of that deposit (since they must keep 10% as reserves). This initial lending can be multiplied throughout the banking system as each recipient deposits the money, and it gets lent out again, minus the reserve requirement. The formula for the maximum increase in the assets of commercial banks is given by the money multiplier formula, which is 1/reserve ratio. In this case, it's 1/0.1 = 10. Therefore, the maximum increase in assets is $50 * 10 = $500.

Following a New Deposit of $50 When the Desired Reserve