Question

Due to the multiplier effect, what is the maximum amount That There Bank could loan out?

Answer 1

Uhhh... $34.000 if I’m wrong just comment me saying REJECTED

Answer 2

Answer:

The maximum amount a bank can lend depends on the reserve ratio.

Explanation:

The money multiplier effect is the process that allows banks to multiply money from an initial amount of money.

Imagine that John makes a deposit of $ 1,000 in a bank, if the cash ratio is 10%, the bank will have to save 10% of that $ 1,000 ($ 100) and can lend $ 900 of that money to Mary. If Mary deposits it again in the bank, the bank saves 10% of the $ 900 deposited (90 dollars) and lends the remaining $ 810 to Norman, so on in a decreasing infinite series.

This is because banks are only required to keep a minimum level of money in their reserves. This minimum is called the reserve ratio and is determined by each central bank.