Ask Question
BusinessBusiness
20 June, 21:52

If a bank receives a new deposit of $10,000, and the required reserve ratio is 25 percent, then the new money that can be created by the banking system, including the initial deposit, is: a. $4,000. b. $10,000. c. $40,000. d. $2,500. e. $25,000.

+5
Answers (1)
  1. 21 June, 01:22
    0
    C. 40000

    Explanation:

    As per Money Multiplier / Credit Creator:

    Total Money Creation = (1/Legal Reserve Ratio) times Initial Deposits

    (1/0.25) i. e 4 times Initial Deposits = 4 X 10000 = 40000

    Money Multiplier Working : It is based on assumptions that - Entire banking system is unified, all payments & receipts go through bank.

    Suppose: With new deposits $1000, LRR proportion (CRR & SLR i. e mandated to be kept by banks with themselves, banks respectively) - i. e 25% = $250 is retained & remaining $750 is lended. Lent funds $750 are spent by borrower, which are received in someone else's bank account (one person expenditure is other person income & assumption). Again, 20% of these deposited $750 i. e $150 is retained & remaining $600 is lended again. These $600 spent & received by someone further create deposit again.

    This process goes in till : Final Deposits = 1/LRR X Initial deposits (100) and become $400
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “If a bank receives a new deposit of $10,000, and the required reserve ratio is 25 percent, then the new money that can be created by the ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers
You Might be Interested in
Under continuous budgeting a new month is added to the end of the budget period each time the present month expires so that a twelve-month budget is available at all times. TrueFalse
Answers (1)
Franchise fees should be recognized 1. on the date the contract was signed. 2. when performance obligations are satisfied. 3. on the date the franchise is opened for business. 4. on the date the franchise fee is paid to franchisor.
Answers (1)
Which concept refers to a state of normlessness that is kept in check by group membership?
Answers (1)
What are the risks of foreign outsourcing?
Answers (1)
A headline states: "Real GDP falls again as the economy slumps." This condition is most likely to produce what type of unemployment? A. Structural. B. Cyclical. C. Frictional. D. Natural.
Answers (1)
New Questions in Business
A (n) is the issuer's written promise to pay an amount equaling the par value. The par value is paid at a specified future date. Most often, the issuer is required to make semiannual interest payments.
Answers (1)
The primary goal of the Consumer Financial Protection Bureau is: A To monitor your credit report and ensure your identity and other sensitive data has not been compromised. B To protect against abusive or deceptive debt collection purposes.
Answers (1)
Jake Skinner purchases a big screen TV on credit and will repay the loan with one payment at the end of 90 days. What type of credit did Jake use?
Answers (1)
Which most likely results from producers engaging in specialization? Producers reduce their costs. Producers increase their market share. Producers decrease the materials needed for production. Producers always offer more competitive pricing.
Answers (1)
The workers at State Hospital, a public sector employer, and Acme Inc, a private employer, are subject to speech censorship and arbitrary job termination. Constitutional issues are present only for the State Hospital workers. TrueFalse
Answers (1)
Home » Business » If a bank receives a new deposit of $10,000, and the required reserve ratio is 25 percent, then the new money that can be created by the banking system, including the initial deposit, is: a. $4,000. b. $10,000. c. $40,000. d. $2,500. e. $25,000.
Sign Up Forgot Password?