If the reserve ratio is 8 percent, then $4,500 of additional reserves can create up to
A)$4,500 of new money.
B)$48, 913 of new money.
C)$56,250 of new money.
D)$75,000 of new money.

Question

Quizplus · Accepted Answer

The formula for calculating the maximum amount of new money that can be created is:
Maximum new money = 1 / Reserve ratio x additional reserves
Plugging in the given values, we get:
Maximum new money = 1 / 0.08 x 4,500
Maximum new money = 56,250
Therefore, the correct answer is C, which is $56,250 of new money.

If the Reserve Ratio Is 8 Percent, Then $4,500 of Additional