Question

If a bank holds $450,000 in required reserves, and $1.8 million in total deposits, then the deposit expansion multiplier is:______.

a. 0.25
b. 2
c. 4
d. 5
e. 10

Answer 1

4

Step-by-step explanation:

A bank holds 450,000 in required reserves

The bank also hold 1,800,000 in total deposits

Therefore the deposits expansion multiplier can be calculated as follows

= 1,800,000/450,000

= 4

Hence the deposits expansion multiplier is 4