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    Required Reserve Ratio

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    Explain using Year 1 Macro-Canadian Perspective

    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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    Solution Preview

    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 ...

    Solution Summary

    The required reserve ratio is assessed in this solution.

    $2.49

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