The money multiplier
This problem relates to the Money Multiplier rather than the spending multiplier. This is a very important problem on money creation.
The First National Bank has reserves of $150,000 and demand deposits equal to $1,200,000. The reserve ratio is 10 percent. How much in excess reserves does the bank now have? What is the maximum amount the bank could currently lend out? Show all work.
By how much could the money supply in the entire banking system expand if the First National Bank loans out all of their excess reserves?