As we have seen that the hundred-dollar deposits generate one hundred
dollars of new ones , and so on , then the money generated is equal to bank
deposits divided by one minus the ratio of the legal reserve , and can be represented
by the following equation :
Cash = deposits ÷ (1 - legal reserve ratio)
Applying the formula to the previous example , we find that the money
that was generated as follows :
100 ÷ (1-0,5) = 200
Total amounts deposited = total loans + deposit first
The following table shows the calculation method for illustration only ,
since the legal reserve ratio of 50 % as opposed to here , but we actually made
it so for illustration only.
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