Answer:
c. $40,000
If the bank receives 10,000 deposit and the reserve ratio requirement is 0.2 the bank can only lend out 8,000 (0.8*10,000), however to find what the whole banking system can lend out because of this one transaction we have to use the multiplier formula which is 1/Required reserve ratio so 1/0.2= 5
The multiplier ratio is 5 so in order to find the amount of money created we will multiply 10,000 by in order to find out the total money that the banking system will create which is 50,000. Out of this 50,000 the banking will have to save 20% as reserves so they can lend 80% of this amount which is 0.8*50,000= 40,000.
Step-by-step explanation: