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JAMB Economics 1986 Question 34

Question 34

Financial Institutions

Given that the cash reserve ratio is 10 per cent, what is the maximum amount of money that the banking system can create from an initial cash deposit of ₦1,000.00?

  1. A.₦100.00
  2. B.₦1,000.00
  3. C.₦9,000.00
  4. D.₦10,000.00.
Show the answer and explanation

Answer: D (₦10,000.00.)

Explanation

The credit multiplier is 1 ÷ reserve ratio = 1 ÷ 0.10 = 10, so total deposits can grow to 10 × ₦1,000 = ₦10,000.