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How Can a New Deposit of $10,000 at One Bank

question 191

Essay

How can a new deposit of $10,000 at one bank create other new deposits at other banks? Suppose the desired reserve ratio is 10 percent and people keep no currency outside of the banks.What will be the new amount of deposits in the second and third rounds?


Definitions:

Transaction

A financial event that changes the balance of two or more accounts.

Debt Ratio

Debt ratio is a financial ratio that measures the extent of a company's leverage by comparing its total debt to its total assets.

Total Liabilities

The combined amount of all financial obligations a company owes to external parties, recorded on the balance sheet.

Total Assets

The sum of all assets owned by a company, including current and non-current assets, as reported on the balance sheet.

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