The total amount of credit that can be created through the credit creation process can be calculated using the money multiplier formula.
Money Multiplier = 1 / Reserve Ratio
In this case, the reserve ratio is 30%, so the money multiplier would be:
Money Multiplier = 1 / 0.30
Money Multiplier = 3.33
Now, to calculate the total amount of credit that can be created, we use the formula:
Total Credit = Total Reserves x Money Multiplier
Total Reserves = K500,000
Money Multiplier = 3.33
Total Credit = K500,000 x 3.33
Total Credit = K1,665,000
Therefore, the total amount of credit that can be created through the credit creation process will be K1,665,000.
If a bank receives K500000 in deposit and if the reserve ratio is 30%, calculate the total amount of credit that can be created through the credit creation process.
5 answers
Apologies the reserve ratio is 20% not 30%.
No problem! If the reserve ratio is 20%, we can recalculate the total amount of credit that can be created through the credit creation process.
Money Multiplier = 1 / Reserve Ratio
Money Multiplier = 1 / 0.20
Money Multiplier = 5
Now, we can use the formula to calculate the total amount of credit that can be created:
Total Credit = Total Reserves x Money Multiplier
Total Credit = K500,000 x 5
Total Credit = K2,500,000
Therefore, with a reserve ratio of 20%, the total amount of credit that can be created through the credit creation process will be K2,500,000.
Money Multiplier = 1 / Reserve Ratio
Money Multiplier = 1 / 0.20
Money Multiplier = 5
Now, we can use the formula to calculate the total amount of credit that can be created:
Total Credit = Total Reserves x Money Multiplier
Total Credit = K500,000 x 5
Total Credit = K2,500,000
Therefore, with a reserve ratio of 20%, the total amount of credit that can be created through the credit creation process will be K2,500,000.
Apologies the bank received a deposit of K50000 not K500000.
No problem! If the bank received a deposit of K50000 and the reserve ratio is 20%, we can recalculate the total amount of credit that can be created through the credit creation process.
Total Reserves = K50000
Money Multiplier = 1 / 0.20 = 5
Total Credit = Total Reserves x Money Multiplier
Total Credit = K50000 x 5
Total Credit = K250000
Therefore, with a deposit of K50000 and a reserve ratio of 20%, the total amount of credit that can be created through the credit creation process will be K250000.
Total Reserves = K50000
Money Multiplier = 1 / 0.20 = 5
Total Credit = Total Reserves x Money Multiplier
Total Credit = K50000 x 5
Total Credit = K250000
Therefore, with a deposit of K50000 and a reserve ratio of 20%, the total amount of credit that can be created through the credit creation process will be K250000.
1 answer