Question

Suppose that the bank sets a reserve requirement of 32, what is the monetary multiplier? Round your answer 2 decimal places. b. If a bank experiences a monetary multiplier of 17.0, has actual reserves of 26,000, and excess reserves of 25,000, what is the maximum amount of money creation that can be made?

Answer 1

Suppose that the bank sets a reserve requirement of 32, what is the monetary multiplier?
Answer
Money multiplier =1/reserve ratio
=1/0.32
=3.125
=3.13
the multiplier is 3.13
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b. If a bank experiences a monetary multiplier of 17.0, has actual reserves of 26,000, and excess reserves of 25,000, what is the maximum amount of money creation that can be made?

Answer
money creation =excess reserves *money multiplier
=25000*17
=425000
the maximum amount of money creation that can be made is $425000