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19 January, 17:51

Danielle recently moved to the United States with $10,000 of acceptable currency that had never been in the system before. Assume Danielle deposits the money into First National Bank. If the central bank has set a required reserve ratio of 20 percent, what is the maximum amount of money First National Bank can create?

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  1. 19 January, 20:22
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    The maximum amount of money First National Bank can create is $50,000

    Explanation:

    The computation of the maximum amount of money is calculated by applying the formula which is shown below:

    The Maximum amount of money = Reserve amount * (1 : required reserve ratio)

    = $10,000 * (1 : 20%)

    = $10,000 * 5

    = $50,000
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