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Excess Reserves and the Money Multiplier

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Calculate the required numbers given the following information:

(1) If the reserve ratio requirement is 5%, what is the money multiplier? ___________

(2) If the total deposits in the banking system are $250 million, what aggregate amount of dollars must be held by the Fed for all banks? ______________

(3) What is the amount of excess reserves? ________________

(4) What is the potential deposit creation into the banking system? _____________

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Solution Preview

Hi, answers are below:

1. The money multiplier is the inverse of the reserve ratio requirement, 1/RR, so in this case it ...

Solution Summary

This solution runs through a few basic concepts in monetary economics, including excess reserves, the money multiplier, and potential deposit creation.