If the reserve ratio is 10 percent,$1,400 of additional reserves can create up to
A)$140 of new money.
B)$14,000 of new money.
C)$140,000 of new money.
D)None of the above is correct.

Question

Quizplus · Accepted Answer

The reserve ratio is the percentage of deposits banks are required to hold as reserves. In this case, the reserve ratio is 10%, which means that for every $1,400 of additional reserves, banks can create new deposits worth up to 10 times that amount, or $14,000. This is because banks are only required to hold 10% of deposits as reserves, and can lend out the rest. Therefore, the correct answer is B).

If the Reserve Ratio Is 10 Percent,$1,400 of Additional Reserves