Homework Answers
Ans. Money multiplier = 1/ (Reserve ratio)
Money supply will increase by the amount of bank reserves raised by the central bank times the money multiplier.
a) When the banking system is 100% reserve banking system, the money multiplier = 1/1 = 1
Hence, the increase in bank reserves by $200 will increase money supply by $200.
b) When the reserve ratio is 0.25, money multiplier = 1/(0.25) = 4
Hence, increase in bank reserves by $200 will increase money supply by $200 * 4 = $800
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I know the answer, but i don’t know how to calculation.
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I know the answer, but i don’t know how to calculation.
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