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With an initial depost of $1000 and a reserve requirement of 4%, what is the total...

With an initial depost of $1000 and a reserve requirement of 4%, what is the total amount of money creation possible?

With an initial depost of $1200 and a reserve requirement of 5%, what is the total amount of money creation possible?

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Answer #1
Money multiplier = 1/Reserve requirement ratio
The reserve requirement ratio is 4%.
Money multiplier = 1/.04
Money multiplier = 25.
Increase in money supply = 1000*25
Increase in money supply = 25000
The total amount of money creation possible is $25000.
Money multiplier = 1/Reserve requirement ratio
The reserve requirement ratio is 5%.
Money multiplier = 1/.05
Money multiplier = 20.
Increase in money supply = 1200*20
Increase in money supply = 24000
The total amount of money creation possible is $24000.
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