Share
Explore BrainMass

# calculation of the value of the simple deposit expansion multiplier

The required reserve ratio is 5%

Assets: Liabilities:

Cash- \$24 mil Demand Deposits- \$180 mil
Deposits w/ Fed.- \$16 mil Time deposits- \$10 mil
Loan- \$100 mil Capital- \$10 mil
Treas. Securities- \$60 mil

So I got the following:

Level of reserves is \$40 mil.
The reserve ratio is 40/180 or 2/9
The required reserves are \$9 mil.
The level of excess reserves are \$31 mil.

I got this far, but my last question asks what the value of the simple deposit expansion multiplier is. I think it is 1/0.05 or 20. But then the question asks if the excess reserve goes to 0 then what is the maximum amount by which the money supply can increase is. I have tried to figure it out, but can't. Can you show me how and why,, and if I got the first part correct? This is due tomorrow and I have tried for 2 days to figure it out. I give up!

#### Solution Preview

Your calculation of the value of the simple deposit expansion multiplier is correct. It is M=1/0.05 = 20
<br>When the ...

#### Solution Summary

A calculation of the value of the simple deposit expansion multiplier is depicted.

\$2.19