Question

You decide to take $300 out of your piggy bank at home and place it in the bank. If the reserve requirement is 5 percent, by how much can your $300 increase the amount of money in the economy?

Answer 1

Answer:

$6000

Explanation:

credit creation=original deposit×credit multiplier coefficient

credit multiplier coefficient =1/rate of reserve

my deposit increase amount of money in economy= 300×(1/5%)

300×{1/(1×5/100)}

300×(1/0.05)

300×20

=6000