Suppose the Required Reserve Ratio Is 20

question 58

Essay

Suppose the required reserve ratio is 20%. What is the maximum amount of total money supply that can be created from an initial deposit of $200? In general, why might the actual amount of total money creation be less than the maximum?

---

Definitions:

Elevate

To lift something up or to raise to a higher position or level.

Lateral Epicondyle

The Lateral Epicondyle is a bony prominence on the outer side of the elbow, to which the tendons of the muscles that extend the wrist and fingers are attached.

Proximal Phalanx

The bone in the fingers or toes that is closest to the hand or foot, and forms the base of each digit.

Extensor Digiti Minimi

A muscle in the forearm that extends the little finger and, by its action, contributes to the extension and abduction of the hand at the wrist joint.