You're the president of a savings bank that just took in a deposit of $100.Your bank's reserve requirement is 10 percent.Using the concept of the money multiplier,the deposit will generate how much in loans?

Question

Quizplus · Accepted Answer

The correct answer is $900. This is because with a reserve requirement of 10 percent, the bank must keep $10 (10% of $100) in reserve and can loan out the remaining $90. However, the concept of the money multiplier indicates that this initial loan will lead to a series of deposits and loans, with the total amount of loans generated being $900. This is calculated as the initial deposit ($100) divided by the reserve requirement (0.10), which equals $1,000 in total money creation (including the initial deposit), of which $900 is in the form of loans.

You're the President of a Savings Bank That Just Took