If one were to follow this multiple deposit expansion process to its completion

If one were to follow this multiple deposit expansion process to its completion

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If one were to follow this  multiple deposit expansion  process to its completion, the end result  would be that the bank's deposits would increase by $1 million, its loans would increase by  $900,000, and its reserves would increase by $100,000, all due to the initial deposit of $100,000.  Money multiplier.  The amount by which bank deposits expand in response to an increase in  excess  reserves  is found through the use of the  money multiplier , which is given by the formula  In the example of deposit expansion found in Table 2  , the reserve requirement is 10%; so, the  money multiplier in this case is (1/.10) = 10. The excess reserves resulting from the initial deposit of  $100,000 are $90,000. Multiplying $90,000 by the money multiplier, 10, yields $900,000, which is the  amount of  additional  deposits created by the banking system as the result of the initial $100,000 
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This note was uploaded on 11/18/2011 for the course ECO 1310 taught by Professor Staff during the Fall '10 term at Texas State.

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