Macroeconomics question?

Question

If the minimum reserve ration is 10%, the $1 of reserves can support a maximum of $5 more in transactions dposits?

Answer is "False" but why?

Would someone explain to me? Thank you.

Answer 1

Just imagine the disaster to the US financial system if everybody started a run on the banks?  lol

Answer 2

Because of money-multiplier rule:

$1 / 10%= $1 / 0.1 = $10

So right answer is - it can support a maximum of $10 on deposits (doesn't matter which, so including transaction ones).

Answer 3

10% of $5 is only 50 cents in reserves.  You have a dollar of reserves you can do $10 in transaction deposits.

Its 10% x maxTD = $1 in reserves

or

MaxTD = $1/.1

which is $10