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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.