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    calculation of the value of the simple deposit expansion multiplier

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    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!

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    Solution Preview

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

    Solution Summary

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

    $2.49

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