Part 4: Calculations 1) What is the potential money multiplier when the required
ID: 2440473 • Letter: P
Question
Part 4: Calculations 1) What is the potential money multiplier when the required reserve ratio is 15%? 2) If the required reserve ratio is 15%, how much can the money supply increase in response to a $100,000 increase in excess reserves? 3) What is the potential money multiplier when the required reserve ratio is 18%? 4) If the required reserve ratio is 18%, how much can the money supply increase in response to a $100,000 increase in excess reserves? 5) What is the potential money multiplier when the required reserve ratio is 12%? 6) If the required reserve ratio is 12%, how much can the money supply increase in response to a $100,000 increase in excess reserves?Explanation / Answer
1)
Money multiplier = 1/ Required Reserve Ratio
= 1/.15
= 6.66
2)
Total increase in money supply = 100,000*6.66
= 666,666.66
3)
Money multiplier = 1/0.16
= 6.25
4)
Increase in money supply = 6.25*100,000
= 6,25,000
5)
Money multiplier = 1/.12
= 8.33
6)
Increase in money supply = 8.33*100,000
= 833,333.333