If you go into a bank which faces a 10% required reserve ratio and borrow $1,000, the bank will ____ in your checking account at the bank.

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Quizplus · Accepted Answer

When you borrow $1,000, the bank doesn't subtract money from your checking account. Instead, they create a new deposit of $1,000 in your checking account, which increases the amount of money in circulation. The bank is only required to keep 10% of this deposit ($100) as a reserve and can lend out the remaining $900 to others. This process is known as the money multiplier effect.

If You Go into a Bank Which Faces a 10