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?

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Business

Kaya

6 March, 10:05

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?

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Answers (1)

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Angie Bender · Answer 1

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

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