3. If the required reserve ratio is 20% a) How much of a new $10,000 deposit...

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3. If the required reserve ratio is 20% a) How much of a new $10,000 deposit can a bank lend? b) What is the potential impact

business economics

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Answer 1

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a)

Required reserves =deposits * required reserve ratio=10000*0.2=2000

Bank can lend =excess reserves =new deposit - required reserve =10000-2000=$8000

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b)

Potential impact on money supply =money multiplier * new deposits

money multiplier =1/reserve ratio

=1/0.2=5

Potential impact on money supply=5*10000=$50000

c)

Mone multiplier =(1+ cash deposit ratio)/(cash deposit ratio +required reserves)

=(1+0.15)/(0.15+0.2)

=3.28571429

Impact on money supply =money multiplier * new deposits =3.28571429*10000=32857.1429=32857.14

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Answer 2

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