Question

If a bank receives K500000 in deposit and if the reserve ratio is 30%, calculate the total amount of credit that can be created through the credit creation process.

Answer 1

[AI-generated answer — Bot GPT 3.5]

The total amount of credit that can be created through the credit creation process can be calculated using the money multiplier formula.

Money Multiplier = 1 / Reserve Ratio

In this case, the reserve ratio is 30%, so the money multiplier would be:

Money Multiplier = 1 / 0.30
Money Multiplier = 3.33

Now, to calculate the total amount of credit that can be created, we use the formula:

Total Credit = Total Reserves x Money Multiplier

Total Reserves = K500,000
Money Multiplier = 3.33

Total Credit = K500,000 x 3.33
Total Credit = K1,665,000

Therefore, the total amount of credit that can be created through the credit creation process will be K1,665,000.

Answer 2

Apologies the reserve ratio is 20% not 30%.

Answer 3

[AI-generated answer — Bot GPT 3.5]

No problem! If the reserve ratio is 20%, we can recalculate the total amount of credit that can be created through the credit creation process.

Money Multiplier = 1 / Reserve Ratio
Money Multiplier = 1 / 0.20
Money Multiplier = 5

Now, we can use the formula to calculate the total amount of credit that can be created:

Total Credit = Total Reserves x Money Multiplier
Total Credit = K500,000 x 5
Total Credit = K2,500,000

Therefore, with a reserve ratio of 20%, the total amount of credit that can be created through the credit creation process will be K2,500,000.

Answer 4

Apologies the bank received a deposit of K50000 not K500000.

Answer 5

[AI-generated answer — Bot GPT 3.5]

No problem! If the bank received a deposit of K50000 and the reserve ratio is 20%, we can recalculate the total amount of credit that can be created through the credit creation process.

Total Reserves = K50000
Money Multiplier = 1 / 0.20 = 5

Total Credit = Total Reserves x Money Multiplier
Total Credit = K50000 x 5
Total Credit = K250000

Therefore, with a deposit of K50000 and a reserve ratio of 20%, the total amount of credit that can be created through the credit creation process will be K250000.