Suppose that the banking system in canada has a required reserve ratio of 10 percent while the banking system in the united states has a required reserve ratio of 20 percent. in which country would $100 of initial excess reserves be able to cause a larger total amount of money creation?

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Business

Felipe Preston

21 April, 23:49

Suppose that the banking system in canada has a required reserve ratio of 10 percent while the banking system in the united states has a required reserve ratio of 20 percent. in which country would $100 of initial excess reserves be able to cause a larger total amount of money creation?

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Twiggy · Answer 1

I understand here the "money creation" to mean that the money would enter the circulation. Then the bigger amount of money creation is when less money needs to be retained by the banks!

and if the bank has to keep 10%, this is less than when it needs to keep 20% - so more money would enter the market in Canada!