Use the following balance sheet for the New Bank of Catawba to answer the next question. Assume the required reserve ratio is 0.10 and the bank receives $50,000 in new checking deposits.

Assets

Liabilities

Total Reserves

$50,000

Checking Deposits

$200,000

Loans

$150,000

If the banking system as a whole had been loaned up prior to the new deposit, how much new money can the banking system now create?

Question

Use the following balance sheet for the New Bank of Catawba to answer the next question. Assume the required reserve ratio is 0.10 and the bank receives $50,000 in new checking deposits.

Assets

Liabilities

Total Reserves

$50,000

Checking Deposits

$200,000

Loans

$150,000

If the banking system as a whole had been loaned up prior to the new deposit, how much new money can the banking system now create?

BlackTom AI · Accepted Answer

To tackle this question, I’ll walk through the effects of a $50,000 new checking deposit in a system that is already loaned up, using the reserve ratio of 0.10.
Option A: $5,000. This would be the amount of required reserves created by the new deposit (0.10 × $50,000 = $5,000). However, the question asks for how much new money the system can create, not how much of the deposit must be held as reserves. So this underestimates the potential expansion.
Option B: $450,000. This is the correct magnification if we consider the excess reserves and the money multiplier. After the $50,000 deposit enters the system, total reserves rise to $50,000. The required reserves for the new deposits are 0.10 × $50,000 = $5,000, leaving $45,000 of excess reserves awake for lending. With a reserve ratio of 10%, the potential money creation across the system is the excess reserves times the money multiplier (1/0.10 = 10), i.e., $45,000 × 10 = $450,000. This reflects the full recursive lending and depositing process once the system is not reserve-constrained. 
Option C: $45,000. This represents just the excess reserves created by the new deposit, not the total potential increase in deposits that can arise from the lending process. The money multiplier amplifies that amount substantially, so naming only $45,000 misses the subsequent rounds of deposit expansion.
Option D: $50,000. This would equal the initial increment to reserves/deposits, but it ignores the ability of banks to lend out their excess reserves and thus generate further deposits. It underestimates the cascading effect of loan creation and deposit creation in the system.
In summary, once the system is loaned up and a new $50,000 deposit arrives, $5,000 must be reserved immediately, leaving $45,000 as excess reserves. With a 10% reserve requirement, the total potential new money across the banking system is $45,000 × 10 = $450,000, reflecting the multiplier effect of lending and re-depositing.

ECON 2002.01 AU2025 (21333) Final Exam- Requires Respondus LockDown Browser

查看解析

登录即可查看完整答案

类似问题

Suppose the reserve requirement is set at 11 percent and excess reserves are $28 million. What is the money multiplier?

If the Fed were to decrease the required reserve rate from ten percent to five percent, the simple deposit multiplier would

The money multiplier formula is 1/reserve ratio. If the reserve requirement is 10%, what is the maximum amount of new money that can be created from CHF 1,000 of new deposits?

The money multiplier formula is 1/reserve ratio. If the reserve requirement is 10%, what is the maximum amount of new money that can be created from CHF 1,000 of new deposits?

The money multiplier formula is 1/reserve ratio. If the reserve requirement is 10%, what is the maximum amount of new money that can be created from CHF 1,000 of new deposits?

The money multiplier formula is 1/reserve ratio. If the reserve requirement is 10%, what is the maximum amount of new money that can be created from CHF 1,000 of new deposits?

The money multiplier equals 1/(1 - R), where R represents the reserve ratio.

TB MC Qu. 04-35 The Fed changes reserve requirements from... The Fed changes reserve requirements from 10 percent to 13 percent, thereby eliminating $700 million in excess reserves. The total change in deposits (with no drains) would be (rounded):

更多留学生实用工具

考试浏览器助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单