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Money Supply Multipliers And Reserves

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Please help to understand how to do these equations.

Given original deposits of $1,000 and a reserve requirement of 10%;

a) How much new money could be created?
b) What would be the total reserves required?
c) What is the money supply multiplier?

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Solution Preview

The maximum value for the money multiplier is equal to the reciprocal of the reserve (requirement) ratio, so that
M = 1 / r
where M ...

Solution Summary

Money supply multipliers and reserves are analyzed for an original deposit of $1000 and a reserve requirement of 10%.