Please show the work clearly. Thank you ou need to briefty show how to get the r
ID: 1115607 • Letter: P
Question
Please show the work clearly. Thank you ou need to briefty show how to get the results. Use a separate sheet for your anwers New Deposit Required Reserves Bank $10,000 58 Bank B Bank Assume all excess reserves are loaned out 1. What is the reserve requirement ratio? 2. With the reserve requirement ratio from your answer to 1, what is the total increase in the money supply as a result of the initial deposit of $10,000 in Bank A? 3. If the reserve requirement is changed to 0.1, the required reserve for Bank A would be equal t 4. If the reserve requirement is changed to 0.1, what is the total increase in the money supply as a resulh of the initial deposit of $10,000 in Bank A? you will see from your answers 2 and 4 that money supply increase more as RRR decrease)Explanation / Answer
1). Reserve Requirement Ratio = Net deposit / Amount in Reserves = 2000/1000 = 0.2
2). Income multiplier = Amount Deposited/ Reserve Deposit ratio
= 10,000/0.2 = 50,000
3). If the Ratio changes to 0.1, then the required deposit in A would be = Net Deposit * Reserve Deposit Ratio
= 10,000 * 0.1 = 1,000
4). The increase in money multiplier = 10,000/0.1 = 1,00,000