To determine the maximum amount of possible loans that banks are able to give out from any deposit, we need to understand two key concepts: the excess reserve and the money multiplier.
1. Excess Reserve: This is the amount of reserves that a bank holds beyond the required minimum. In simpler terms, it's the extra money a bank has, which it can lend out.
2. Money Multiplier: This is a factor that represents the maximum amount of new money that can be created by banks from each unit of reserves. It depends on the reserve requirement ratio set by the central bank.
The formula for calculating the maximum possible loans that banks can give out is:
[tex]\[ \text{Maximum Possible Loans} = \text{Excess Reserve} \times \text{Money Multiplier} \][/tex]
Given the problem, the correct option among the provided choices is:
- The excess reserve multiplied by the money multiplier.
For instance, if the excess reserve is $1,000 and the money multiplier is 10, then the maximum amount of possible loans would be:
[tex]\[ 1,000 \times 10 = 10,000 \][/tex]
Thus, the correct choice is:
- The excess reserve multiplied by the money multiplier
