Question

Suppose the reserve requirement is initially set at 10%.

Instructions: In parts a, b, and d, enter your answers as a whole number. In part c, round your answer to two decimal places.

a. At a reserve requirement of 10%, what is the value of the money multiplier?

       

b. If the reserve requirement is 10% and the Fed increases reserves by $20 billion, what is the total increase in the money supply?

     $   billion

c. Suppose the Fed raises the reserve requirement to 16%. What is the value of the money multiplier now?

       

d. Assume the reserve requirement is 16%. If the Fed increases reserves by $20 billion, what is the total increase in the money supply?

     $   billion

e. Raising the reserve requirement from 10% to 16%   (Click to select)   increases   decreases  the money multiplier and   (Click to select)   decreases   increases  the money supply.

Answer 1