If the reserve ratio is 5 percent,then $500 of additional reserves can create up to
A)$10,500 of new money.
B)$10,000 of new money.
C)$9,500 of new money.
D)$2,500 of new money.

Question

Quizplus · Accepted Answer

The formula for calculating the maximum amount of new money that can be created is:
Maximum New Money = Additional Reserves / Reserve Ratio
Using the information given in the question: Additional Reserves = $500 and Reserve Ratio = 5%
Maximum New Money = $500 / 5% = $10,000
Therefore, the correct answer is B, as $10,000 is the maximum amount of new money that can be created with $500 of additional reserves and a reserve ratio of 5%.

If the Reserve Ratio Is 5 Percent,then $500 of Additional