Homework Answers
Answer- a. )Reserve at bank= 100
Required reserve = deposits × reserve ratio
= 500 × 12% = SR 60
Excess reserve = reserve at bank - required reserve
= 100 - 60 = SR 40
If bank reduce its reserve upto required reserve of SR 60, then it can increase money supply in economy.
Money supply increase by SR 333.33
Money supply = excess reserve × 1/ reserve ratio
= 40 × 1/12%
= 40 × 8.33
= SR 333.33
Answer b. )
Money multiplier = 1/reserve ratio
=1/12% = 8.33
Add Answer to:
the required reserve ratio is 12%
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