Suppose That American Citizen Bank Receives $10,000 in New Money

Suppose that American Citizen Bank receives $10,000 in new money in the form of a checking account.Calculate the amount of money the banking system can create under each of the following scenarios:
(a)The reserve ratio is 10% and people hold no cash outside the banking system.
(b)The reserve ratio is 20% and people hold no cash outside of the banking system.
(c)The reserve ratio is 10% and the cash-to-deposit ratio is 10%.
(d)The reserve ratio is 10% and the cash-to-deposit ratio is 20%.
(e)The reserve ratio is 20% and the cash-to-deposit ratio is 20%.
For each of the scenarios (a)-(e),the total amount of new money that the banking system can create is found by using the following formula:
New Money = Initial deposit × the money multiplier
The key to getting the correct values in each case is the appropriate calculation of the money multiplier.For parts (a)& (b)the simple money multiplier formula (1/r)should be used.For parts (c)-(e)the money multiplier formula ((1 + c)/(r + c))should be used.