Use the following to answer questions: For this table, assume that all banks observe the same required reserve ratio requirement. Also assume that the banks are listed in sequential order (thus the loans from the First National Bank become the deposits for the Second National Bank, and the loans from the Second National Bank become the deposits for the Third National Bank, and so on.) Also, the bank's balance sheets must always be balanced.
Table: Multiple Deposit Expansion First National Bank

\begin{array}{ll}\hline \text { ASSETS } & \text { LIABILITIES } \\\hline \text { Required reserves }& \text { Deposits }\quad \$ 400,000 \\\text { Loans }\quad\$ 368,000 & \\\text { TOTAL } & \text { TOTAL }\end{array}

\begin{array}{ll}\text { Second National Bank } & \\\hline \text { ASSETS } & \text { LIABILITIES } \\\hline \text { Required reserves } & \text { Deposits } \\\text { Loans } & \\\text { TOTAL } & \text { TOTAL } \\\hline\end{array}

\text { Third National Bank }

\begin{array}{ll}\hline \text { ASSETS } & \text { LIABILITIES } \\\hline \text { Required reserves } & \text { Deposits } \\\text { Loans } & \\\text { TOTAL } & \text { TOTAL }\end{array}

-(Table: Multiple Deposit Expansion) Refer to the table. For the multiple deposit expansion process described in this table, if all banks hold only the required reserves, what is the money multiplier in this country?
A) 8
B) 10
C) 12.5
D) 5

Under Fractional Reserve Banking, Banks

Multiple Choice

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