In a system of “fractional reserve banking” such as ours, banks have the ability to create (and destroy) money.Explain how banks have the ability to create money by assuming Bank A takes in a $10,000 deposit. (Make up your own numbers as needed.)In part a, what was the reserve to deposit ratio used?How does the size of the reserve to deposit ratio affect how much money a bank can create out of a $10,000 deposit?

In a fractional reserve banking system, banks are only required to hold a fraction of their deposits…

Answered: Explain how banks have the ability to…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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In a system of “fractional reserve banking” such as ours, banks have the ability to create (and destroy) money.

1. Explain how banks have the ability to create money by assuming Bank A takes in a $10,000 deposit. (Make up your own numbers as needed.)
2. In part a, what was the reserve to deposit ratio used?
3. How does the size of the reserve to deposit ratio affect how much money a bank can create out of a $10,000 deposit?

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