Suppose the Bank of Ghana decides to reduce the reserve requirement from 10 perc

Question

Suppose the Bank of Ghana decides to reduce the reserve requirement from 10 percent to 8 percent. If an individual deposits GH¢400 with a bank, which of the following statements will be true?

Select one:

A. The total demand deposits created from GH¢400 will be GH¢444.44 under the new reserve requirement

B. At 10 percent, the total money creation from GH¢400 would have amounted to GH¢434.78

C. With an initial deposit of GH¢400, a bank can now lend GH¢360 after meeting the new requirement of 8 percent

D. Money creation declines approximately by GH¢9.66 as a result of the change in the reserve requirement

Explanation / Answer

Solution: With an initial deposit of GH¢400, a bank can now lend GH¢360 after meeting the new requirement of 8 percent

Explanation: 400 * 8% = 32 ; thus have more than 360 after meeting the new requirement of 8 percent

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