Suppose therequired reserve ratios 20%. What is the maximum amount oftotal money

Question

Suppose therequired reserve ratios 20%. What is the maximum amount oftotal money supply that can be created from an initial deposit of $200? In general, why might the actual amount of total money creation beless than the maximum? 2. Answer here These problems are from Mankiw 2015; all rights reserved- may not be copied or posted on a publicly available website. 3. First National Bank Assets Liabilities $1,200 Deposits $10,000 Loans 8,800 Assumingno excess reserves, the reserve ratio for this bank is instead 1 0 percent, then this bank has excess reserves of If the required reserve ratio were Answer here

Explanation / Answer

Q2
Answer
The maximum amount created by banking system is
=money multiplier*initial deposits

money multiplier=1/reserve ratio=1/0.2=5
the maximum money=5*200=$1000
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the money multiplier assumes that no one will hold money but in general, the public holds money for the day to day transactions so the money creation is lower than maximum.

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