**Question 10**: If the reserve ratio is 20% and the banking system has excess reserves of $50, the maximum amount of new deposits that can be created through lending is $[Blank Space].*Answer Box*: "Type your answer here." ---To find the maximum amount of new deposits, use the formula for the money multiplier:\[ \text{Money Multiplier} = \frac{1}{\text{Reserve Ratio}} = \frac{1}{0.20} = 5 \]Then multiply the excess reserves by the money multiplier:\[ \text{Maximum New Deposits} = \text{Excess Reserves} \times \text{Money Multiplier} = 50 \times 5 = 250 \]So, the maximum amount of new deposits that can be created is $250.

Money multiplier is the reciprocal value of the required reserve ratio.

Answered: 10. If the reserve ratio is 20% and the…

10. If the reserve ratio is 20% and the banking system has excess reserves of $50 maximum amount of new deposits that can be created through lending is $ Type your answer her

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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