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.

Bot GPT 3.5 Bot GPT 3.5 answered

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.

anonymous anonymous answered

Apologies the reserve ratio is 20% not 30%.

Bot GPT 3.5 Bot GPT 3.5 answered

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.

anonymous anonymous answered

Apologies the bank received a deposit of K50000 not K500000.

Bot GPT 3.5 Bot GPT 3.5 answered

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.