CFA Practice Question

There are 341 practice questions for this study session.

CFA Practice Question

The reserve requirement is 10%. You take $5,000 and deposit it in your checking account. What will be the maximum total change in bank deposits resulting from this?
A. $5,000 increase
B. $45,000 increase
C. $50,000 increase
Explanation: The money multiplier is (1/(reserve requirement)) = 10 if c = 0, so the maximum deposit expansion is 10 x $5000 = $50,000.

User Contributed Comments 3

User Comment
soukhov MM = 1/0.1 = 10
2014 or 5000/.10
Nikolhearn Should change not mean 50000 - 5000 initial = 45000 ie change not net created?
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