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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 Preview

    money multiplier = 1 / Reserve Ratio

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

    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.