Posted: August 11th, 2015

The Potential Money Multiplier

The Potential Money Multiplier

Read the scenario below, and then answer questions 1 and 2.
Scenario: Bank A has an increase in deposits (or excess reserves) of $100M and the reserve requirement is 10% with other banks not holding reserves beyond the requirement.

1. How much money can Bank A create by making loans?
2. How much money can the banking system as a whole create? (Show calculation).

Course Material: Hubbard, R. (2013). Money, Banking, and the Financial System (2nd ed.). New York, N.Y.: Pearson. ISBN: 9780132994910
Can also use First Addition

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