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? _____________
Hi, answers are below:
1. The money multiplier is the inverse of the reserve ratio requirement, 1/RR, so in this case it ...
This solution runs through a few basic concepts in monetary economics, including excess reserves, the money multiplier, and potential deposit creation.