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If the public withdraws an extra $300 from the banking system, the legal rrr=.01, what is...

If the public withdraws an extra $300 from the banking system, the legal rrr=.01, what is the effect on money supply?
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Answer #1

The formulas for estimating the increase in the money supply are as follows. First, the money multiplier = 1 / reserve ratio.

Finally, to determine the overall increase in the money supply, using the Increase in Money Supply = Change in Reserve * Money Multiplier formula.

Multiplier = 1/RRR

= 1/Required Reserve Ration

= 1/0.01

= 100

Effect of money supply = Change in reserve * Money multiplier

= 300 * 100

= $30000

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