Question

Choose the correct alternative to complete the given schedule: 

• A. 2000, 1620, 20000, 18000
• B. 1800, 180, 2000, 18000
• C. 1620, 180, 2000, 18000
• D. 1800, 1620, 20000, 18000

Hint:

The total money supply depends on the money multiplier effect, which expands deposits through the credit creation process.

Answer 1

The Correct Option is D

The credit creation process is detailed as follows: 1. Round II Deposits are derived from Round I Loans, totaling 1800.
2. Round II Loans are set at 90% of Round II Deposits, equating to 1620.
3. Total Deposits are calculated by multiplying the Initial Deposit by the Money Multiplier.
- The Money Multiplier is computed as \( \frac{1}{\text{Reserve Ratio}} = \frac{1}{0.10} = 10 \).
- Consequently, Total Deposits amount to \( 2000 \times 10 = 20000 \).
- Total Loans are determined by subtracting Reserves from Total Deposits, resulting in \( 20000 - 2000 = 18000 \). Conclusion: The accurate figures are (i) 1800, (ii) 1620, (iii) 20000, and (iv) 18000, which validates option (D).