Question

# In a 100% reserve banking system, what is the money multiplier? A. The money multiplier is...

1. In a 100% reserve banking system, what is the money multiplier?

 A. The money multiplier is 1, meaning banks do not impact the money supply B. The money multiplier is 1, meaning banks change the money supply C. The money multiplier is 0, meaning banks do not impact the money supply D. The money multiplier is 0, meaning banks change the money supply
2. A bank has \$2 million in reserves and \$14 million in loans. These are the bank's only assets and bank capital is \$0. What is the reserve ratio?

 A. 2% B. 12.5% C. 14% D. 14.3%
3. A bank has \$30 million in reserves and \$200 million in deposits. If the required reserve ratio is 20%, which statement is true?

 A. The bank is exactly meeting the reserve requirement B. The bank has \$10 million in excess reserves? C. The bank has \$20 million in excess reserves D. The bank is \$10 million short of the reserve requirement E. The bank is \$20 million short of the reserve requirement

Q1
Option A
The money multiplier is 1, meaning banks do not impact the money supply
There is 100% reserve requirement that means the money supply can not be changed by banks and it equal to the change made by the central bank.
Multiplier =reserve ratio/deposits=100/100=1
(formula in % terms)
as the deposits =reserves in the 100% reserve system.
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Q2
Option B
Total deposits =reserves +loans=2+14=16
Reserve ratio =reserves /deposits =2/16=0.125=12.5%
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Q3
Option D
Required reserves =deposits * reserve ratio
=200*0.2
=\$40 million
the required reserves are higher than the available reserves so the bank is \$10 million short of the reserve requirement