- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 4. Monetary Policy
- Subject 2. Monetary Policy Tools and Monetary Transmission
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? |