Question

With an initial depost of $1000 and a reserve requirement of 4%, what is the total amount of money creation possible?

With an initial depost of $1200 and a reserve requirement of 5%, what is the total amount of money creation possible?

Answer #1

Money multiplier = 1/Reserve requirement ratio | ||||||

The reserve requirement ratio is 4%. | ||||||

Money multiplier = 1/.04 | ||||||

Money multiplier = 25. | ||||||

Increase in money supply = 1000*25 | ||||||

Increase in money supply = 25000 | ||||||

The total amount of money creation possible is $25000. | ||||||

Money multiplier = 1/Reserve requirement ratio | ||||||

The reserve requirement ratio is 5%. | ||||||

Money multiplier = 1/.05 | ||||||

Money multiplier = 20. | ||||||

Increase in money supply = 1200*20 | ||||||

Increase in money supply = 24000 | ||||||

The total amount of money creation possible is $24000. |

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20 20 Correct
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the banking system, and (c) extent to which the system could expand
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loans?
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Reserve Requirement: calculate the change in money
supply if the change in excess reserves is $100 and the reserve
requirement is 5

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