DepositReserve RequirementMoney MultiplierPotential Money Creation$1,00010%From above $1,00020%From above $1,00025%From above With a deposit of $1,000 and the reserve requirement of 10% what is the potential money creation?Group of answer choices$5,000none of the above$10,000$4,000

Money creation depends upon the reserve requirement lower the reserve requirement higher the money creation Money creation ∝ 1/ RR Where RR - Reserve requirement With a deposit of $1,000 and the reserve requirement of 10% what is the potential money creation Money creation = 1 / RR * 1,000 =(1/10%) * 1,000Changing perncentage = (100/10) * 1,000= $10,000 there will be 10,000 worth of money creation. Correct option C $10,000 Money multiplier = 1 / RR Deposit Reserve Requirement Money Multiplier Potential Money Creation $1,000 10% 1/10% = 100/10 = 10 10 * 1000 = $10,000 $1,000 20% 1/20% = 5 5*1000 = $5,000 $1,000 25% 1/25% = 4 4*1000 = $4,000 Here from the above table we can see that higher the reserve requirement lower will be the money creation.

Answered: Deposit Reserve Requirement Money…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Deposit	Reserve Requirement	Money Multiplier	Potential Money Creation
$1,000	10%	From above
$1,000	20%	From above
$1,000	25%	From above

With a deposit of $1,000 and the reserve requirement of 10% what is the potential money creation?

Group of answer choices

$5,000

none of the above

$10,000

$4,000

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