Question

Suppose the reserve requirement ratio is 20 percent. Assuming no bank holds excess reserves and nobody withdraws cash, a $10,000 injection of new reserves by the Fed can create (in the entire mult-banking system), a maximum of:​

Answer 1

The maximum money created is $50000

Step-by-step explanation:

The given reserve requirement ratio is = 20 percent

The injection of cash = $10000

So, first, we have to find the money multiplier and then multiply with the injected amount.

Since the reserve requirement is 20 percent so the money multiplier = 1/ 20 = 0.5 or 5.

The Fed can create the maximum money = 10,000 x 5 = 50,000