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?

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Definitions:

Uncertain Future

Describes the unpredictability or the lack of clarity regarding events or outcomes that will occur in time ahead.

Basis of Value

The principle or standard by which the value of an asset is determined.

Stocks

Financial instruments representing ownership shares in a corporation, giving holders a claim on the corporation's earnings and assets.

Dividends

A portion of a company's earnings distributed to its shareholders, representing a share of the corporate profits.