CIMA BA1 · Chapter 12 · Question 3 of 9
A bank receives a new cash deposit of $50,000. All banks maintain a reserve ratio of 8% and there are no cash leakages. What is the maximum total increase in bank deposits across the banking system, including the initial deposit?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) $625,000
Explanation
Credit multiplier = 1 / reserve ratio = 1 / 0.08 = 12.5. Maximum total deposits = $50,000 x 12.5 = $625,000. Of this, $575,000 is new credit created by lending.
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