Question

Assume $1,000 is deposited in a checkable account by Mr. Y in Bank A. Assume further that the reserve requirement is 0.10. The initial amount of money which can be created by this excess reserve within Bank A is $________ .

Answer 1

Answer:

$900

Explanation:

As $1,000 is deposited in the account by Mr. Y in the Bank A. But the further requirement of the reserve is 0.10. So, it will amounts to:

Amount of reserve requirement = Amount deposited × Requirement of reserve

where

Amount deposited is $1,000

Requirement of reserve is 0.10

= $1,000 × 0.10

= $100

Therefore, the initial amount of the money that created by excess reserve is:

= Amount deposited - Amount of reserve requirement

= $1,000 - $100

= $900