Required reserves

Calculate the minimum amount of money the bank must hold in cash from your deposit 2750 Eur.
How much money is ideally created in the banking system from your deposit if the level of minimum reserve requirement is 2.15%?

Consider fractional reserve system, i.e., your bank can defer from your deposit reserve requirement (PMR), give the rest of the loan, which will again deposit money and thus flow system, etc., etc.
Today, PMR is 2% in the euro area, 10% in the U.S., and 17% in China.


What is the cash multiplier, the ratio between the generated money and the deposit from which it originated?

Final Answer:

Required reserves:  59.125 €
Total money created:  127907 €
Money multiplier:  46.5116

Step-by-step explanation:

$r=2750\cdot \frac{2.15}{100}=59.125\text{Eur}$

$c=2750\cdot \frac{100}{2.15}=127907\text{Eur}$

$m=\frac{100}{2.15}=46.5116$

Try another example