CFA Level 1: Deposit Expansion Multiplier Calculation

Deposit Expansion Multiplier Calculation

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Question

A bank has deposits of $23 billion and reserves of $3.1 billion. If the excess reserves equal $400 million, the deposit expansion multiplier equals ________.

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Explanation

The required reserves equal 3.1 - 0.4 = $2.7 billion on deposits worth $23 billion. Thus, the required reserve ratio equals 2.7/23 = 11.74%. So the deposit expansion multiplier equals 1/0.1174 = 8.52.

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