AP Macroeconomics Question 389: Answer and Explanation
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12. If the reserve ratio is 10 percent and a new customer deposits $500, what is the maximum amount of money created?
- A. $500
- B. $4,500
- C. $5,000
- D. $50
- E. $5,500
Correct Answer: B
B-The money multiplier is 1/rr = 10. So a $500 deposit creates $450 of new excess reserves, which can multiply to $4,500 of newly created money.