If the reserve ratio is 12.5 percent, then $1,000 of additional reserves can create up to

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01-07-2017
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If the reserve ratio is 12.5 percent, then $1,000 of additional reserves can create up to

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meerkat18 meerkat18 · Answer 1 · 2017-07-14T13:11:24+02:00

meerkat18 meerkat18

14-07-2017

It is required by the country’s central bank that a portion of the depositors’ balances must be in the form of hand as cash. This portion is called the reserve ratio.

Now if an additional reserve of $1,000 is allocated and this is only 12.5 percent, therefore this can create up to

capital = $1,000/0.125

capital = $8,000

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