Required Reserve Ratio
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Some people have suggested raising the required reserve ratio for banks to 100%.
(a) What would the money multiplier be if this change were made?
(b) What effect would such a change have on the money supply?
(c) How could this effect on the money supply in (b) be offset?
(d) Would banks likely favour or oppose this proposal? Why?
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The required reserve ratio is assessed in this solution.
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Some people have suggested raising the required reserve ratio for banks to 100%.
(a) What would the money multiplier be if this change were made?
The money multiplier is simply the inverse of the reserve ratio. If the reserve ratio is 100%, then the deposit multiplier is 1.
(b) What ...
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