The Potential Money Multiplier

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Read the scenario below, and then answer questions 1 and 2. Refer to this week’s readings in the text, if needed.
Scenario: Bank A has excess reserves of $100 million. The Federal Reserve Requirement is 0.10.
Banks hold no excess reserves.

  • How much money can Bank A create by making loans?
  • How much money can the banking system as a whole create? (Show calculation).
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