Question

Danielle recently moved to the United States with $10,000 of acceptable currency that had never been in the system before. Assume Danielle deposits the money into First National Bank. If the central bank has set a required reserve ratio of 20 percent, what is the maximum amount of money First National Bank can create?

Answer 1

The maximum amount of money First National Bank can create is $50,000

Step-by-step explanation:

The computation of the maximum amount of money is calculated by applying the formula which is shown below:

The Maximum amount of money = Reserve amount × (1 ÷ required reserve ratio)

= $10,000 × (1 ÷ 20%)

= $10,000 × 5

= $50,000