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8 November, 21:12

You take $150 you had kept under your mattress and deposit it in your bank account. Supposed this 150 stay in the banking stystem as reserves and bank hold reserves equal to 12.5percent of deposit. What total amount of deposit in the bank stystem increased by and the money supply increased

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  1. 8 November, 22:09
    Answer:The answer is $ 12


    Using the formula total credit / Money created = Total deposit / Cash reserve ratio

    Total deposit = $150

    Cash reserve ratio = 12.5%



    Therefore, the total money created in the banking system is $12. From the above, it could be rightly said that creation of money by banks is a process whereby the banks received deposit from customers and give the deposit to borrowers in the form of loan after deducting cash or reserve ratio.
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