Question

Topic: How Banks Create Money

Skill: Definition
33) Suppose the required reserve ratio is 20%, A $40 million cash deposit will, at most, allow an
expansion of the money supply to

Answer 1

$200 million

Step-by-step explanation:

Increase in the total value of checkable deposit is determined by the money multiplier

Money multiplier = amount deposited /required reserve requirement

Required reserve requirement is the percentage of deposits required of banks to keep as reserves by the central bank

$40 million / 0.2 = $200 million