9 Suppose the required reserve ratio is 20%. a. What is the simple money multiplier? b. Based on the multiplier calculated in part a, if the central bank makes open market purchases of $20 billion, how much will the money supply increase? c. What will happen to interest rates?
9 Suppose the required reserve ratio is 20%. a. What is the simple money multiplier? b. Based on the multiplier calculated in part a, if the central bank makes open market purchases of $20 billion, how much will the money supply increase? c. What will happen to interest rates?
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter21: The Monetary System
Section: Chapter Questions
Problem 10PA
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9
Suppose the required reserve ratio is 20%. a. What is the simple money multiplier? b. Based on the multiplier calculated in part a, if the central bank makes open market purchases of $20 billion, how much will the money supply increase? c. What will happen to interest rates? d. How will the central bank know when to stop making open market purchases? e. Suppose banks, on average, hold an extra 5 percent of deposits as excess reserves , above the required reserve ratio. What would the actual money multiplier be?
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