Refer to the information provided in Scenario 10.2 below to answer the questions that follow.
SCENARIO 10.2: The following table shows the changes in deposits, reserves, and loans of 4 banks as a result of a $100,000 initial deposit in Bank No. 1. Assume all banks are loaned up.
-Refer to Scenario 10.2. How much money will be created based on the initial $100,000 deposit?
A) $1 million
B) $2 million
C) $16.67 million
D) $50 million

Question

Refer to the information provided in Scenario 10.2 below to answer the questions that follow.
SCENARIO 10.2: The following table shows the changes in deposits, reserves, and loans of 4 banks as a result of a $100,000 initial deposit in Bank No. 1. Assume all banks are loaned up. 
-Refer to Scenario 10.2. How much money will be created based on the initial $100,000 deposit?
A) $1 million 
B) $2 million 
C) $16.67 million 
D) $50 million

Quizplus · Accepted Answer

The money multiplier effect is used to calculate the total amount of money created in the banking system from an initial deposit. Assuming a reserve requirement of 10%, the money multiplier is 1/0.10 = 10. Therefore, the total money created from a $100,000 deposit is $100,000 x 10 = $1 million.

Refer to the Information Provided in Scenario 10