Question

How to calculate the total credit created after the full credit creation process, when there Is a new deposit.

Answer 1

[AI-generated answer — Bot GPT 3.5]

To calculate the total credit created after the full credit creation process with a new deposit, you can use the money multiplier formula.

1. First, determine the reserve requirement ratio set by the central bank. This ratio represents the percentage of deposits that banks are required to hold as reserves. For example, if the reserve requirement ratio is 10%, this means that banks must hold 10% of deposits as reserves.

2. Calculate the initial deposit amount. For example, if a new deposit of $1000 is made into the banking system, this is the initial deposit amount.

3. Calculate the total credit created by using the money multiplier formula:

Total Credit Created = Initial Deposit / Reserve Requirement Ratio

For example, if the reserve requirement ratio is 10%, and the initial deposit is $1000, the total credit created would be:

Total Credit Created = $1000 / 0.10 = $10,000

Therefore, after the full credit creation process, the total credit created with a new deposit of $1000 would be $10,000.

Answer 2

What would be the total credit created after the full credit creation process if there is a new deposit of K50Million ,the original deposit is K400 Million and the LGS ratio is 25%?

Answer 3

[AI-generated answer — Bot GPT 3.5]

To calculate the total credit created after the full credit creation process with a new deposit of K50 million, an original deposit of K400 million, and an LGS ratio of 25%, you can use the money multiplier formula.

1. Determine the reserve requirement ratio (RRR) based on the LGS ratio. The reserve requirement ratio is the complement of the LGS ratio, meaning RRR = 1 - LGS ratio. In this case, the RRR would be 75% since the LGS ratio is 25%.

2. Calculate the total reserves held by the banks, which is the sum of the original deposit and the new deposit, and then multiply it by the reserve requirement ratio:

Total Reserves = (K400 million + K50 million) x 0.75
Total Reserves = K450 million x 0.75
Total Reserves = K337.5 million

3. Calculate the total credit created by using the money multiplier formula:

Total Credit Created = (Original Deposit + New Deposit) / Reserve Requirement Ratio
Total Credit Created = K450 million / 0.75
Total Credit Created = K600 million

Therefore, with a new deposit of K50 million, an original deposit of K400 million, and an LGS ratio of 25%, the total credit created after the full credit creation process would be K600 million.