Cash in bank $3400 US government bonds $1600 Checking $12,000 Savings $8000 Depo

Question

Cash in bank $3400
US government bonds $1600
Checking $12,000
Savings $8000
Deposit in the Fed $1200

If the economy has a total of ten banks with identical information to what's given above, and the public holds a total of $100,000 in cash, calculate the actual amount of new money that the whole banking system (all banks working together) will create. Carefully follow all numeric instructions, and these special instructions: Round any intermediate steps to three decimal places and your final answer to two decimal places.

Explanation / Answer

Demand deposits 3400+12000+8000

Demand deposits = 23400

Reserve ratio =10% (1200/12000*100)

Money creation capacity = Primary Deposits *(1/Reserve ratio)

23400*10 = 234000

For ten banks, it will be ten times = 2340000

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