What is the amount of money created in the banking system due to an initial deposit of $1,000 if the required reserve is 5%? The banks are not holding any excess reserves.
To determine the amount of money created in the banking system due to an initial deposit, we need to understand how the banking system works and apply the concept of the money multiplier.
The money multiplier is the reciprocal of the reserve requirement ratio. In this case, the required reserve ratio is 5%, so the money multiplier is 1 divided by 0.05 (or 20).
To calculate the amount of money created, we multiply the initial deposit by the money multiplier. In this case, the initial deposit is $1,000. So, the amount of money created is:
$1,000 x 20 = $20,000
Therefore, the amount of money created in the banking system due to the initial deposit of $1,000, with a required reserve ratio of 5% and no excess reserves, is $20,000.