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Federal Reserve problem

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Suppose that the Federal Reserve lowers the required reserve ratio from 0.10 to 0.05.

How does this affect the simple money multiplier, assuming that excess reserved are held to zero and there are no currency leakages?

What are the money multipliers for required reserve ratios of 0.15 and 0.20?

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Solution Summary

A federal reserve problem is assessed in this solution, solving for the money multiplier required for certain reserve ratios, and how lowering the required reserve ratio affects the simple money multiplier.

Solution Preview

money multiplier = 1 / Reserve Ratio

when Reserve Ratio=0.10, money multiplier = 1 / 0.1 ...

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