# Money multiplier, credit creation, required reserve ratio

Not what you're looking for?

Please help with the following problem.

Use a simple Balance Sheet for a typical bank, which has $5,000 of deposits, a required reserve ratio of 10 percent, and excess reserves of $0.

a. What is the value of money multiplier?

b. If the bank lends it's maximum amount of excess reserve, what would be the total amount credit creation in the entire banking system with this initial deposit of $5,000?

c. If Fed raises the required reserve ratio to 20%, how will it change your answers to a & b above?

##### Purchase this Solution

##### Solution Summary

The solution calculates the value of money multiplier, total amount credit creation in the entire banking system and answers how these calculations would change if Fed raises the required reserve ratio.

##### Solution Preview

Balance Sheet of the Bank:

Assets:

Reserves: $500 =10%*5000

Loans: $4,500

Total Assets: $5,000

Liabilites:

Deposits: $5,000

Total Liabilities: $5,000

a. What is the value of money multiplier?

The money multiplier is the reciprocal of the ...

##### Purchase this Solution

##### Free BrainMass Quizzes

##### Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

##### Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

##### Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

##### Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

##### Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.