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    Money multiplier

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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 reserves 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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    The maximum value for the money multiplier is equal to the reciprocal of the reserve (requirement) ratio, so that
    M ...

    Solution Summary

    This explains the meaning of money multiplier

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