With a reserve ratio of 10%, the banking system can create ____ with each dollar of deposits.
A)$1
B)$2
C)$5
D)$10

Question

Quizplus · Accepted Answer

With a reserve ratio of 10%, banks are required to keep 10% of deposits as reserves and can lend out the remaining 90%. This allows the banking system to create up to $10 for each dollar of deposits through the money multiplier effect, which is calculated as 1 divided by the reserve ratio (1/0.10 = 10).

With a Reserve Ratio of 10%, the Banking System Can