Credit Sprint / Practice problems / Money multiplier and money creation

Money multiplier and money creation practice problems

Macroeconomics Unit 4. Try each one, then open the worked solution. The Credit Sprint app generates unlimited new versions with fresh numbers.

Problem 1.

A customer deposits $9,500 in cash. The reserve requirement is 5%. What is the maximum increase in the money supply from new loans across the banking system?

Show solution

Excess reserves = $9,500 × 0.95 = $9,025. Multiplier = 20. $9,025 × 20 = $180,500.

Problem 2.

A customer deposits $9,500 in cash. The reserve requirement is 20%. What is the maximum increase in the money supply from new loans across the banking system?

Show solution

Excess reserves = $9,500 × 0.8 = $7,600. Multiplier = 5. $7,600 × 5 = $38,000.

Problem 3.

A customer deposits $10,000 in cash. The reserve requirement is 20%. What is the maximum increase in the money supply from new loans across the banking system?

Show solution

Excess reserves = $10,000 × 0.8 = $8,000. Multiplier = 5. $8,000 × 5 = $40,000.

Problem 4.

A customer deposits $5,000 in cash. The reserve requirement is 10%. What is the maximum increase in the money supply from new loans across the banking system?

Show solution

Excess reserves = $5,000 × 0.9 = $4,500. Multiplier = 10. $4,500 × 10 = $45,000.

Problem 5.

A customer deposits $5,500 in cash. The reserve requirement is 20%. What is the maximum increase in the money supply from new loans across the banking system?

Show solution

Excess reserves = $5,500 × 0.8 = $4,400. Multiplier = 5. $4,400 × 5 = $22,000.

Problem 6.

A customer deposits $1,000 in cash. The reserve requirement is 10%. What is the maximum increase in the money supply from new loans across the banking system?

Show solution

Excess reserves = $1,000 × 0.9 = $900. Multiplier = 10. $900 × 10 = $9,000.