Question

With a reserve requirement of 5% and required reserves of $10,000, a bank has a total of

a. $475,000 in demand deposits.
b. $50,000 in checkable deposits.
c. $500 in checkable deposits.
d. $10,000 in demand deposits.
e. $200,000 in checkable deposits.

Answer 1

Answer:

e. $200,000 in checkable deposits

Explanation:

With a reserve requirement of 5% and required reserve of $10,000 a bank has total of:

Money multiplier = 1/reserve requirement

Money multiplier = 1/5%

Money multiplier = 20

Checkable deposits = money multiplier*required reserve

Checkable deposits = 200,000