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How much money can bank a create by making loans

Discussion:

The Potential Money Multiplier

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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