Answered: If a $100 billion increase in…

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter13: The Federal Reserve System

Section: Chapter Questions

Problem 9WNG

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If a $100 billion increase in investment spending creates $100 billion of new income in the first round of the multiplier process and $90 billion of new income in the second round, the multiplier in the economy is ( ).

Assume that you find a $20 bill under your mattress and deposit it into a chequing account. If the reserve ratio is 10% and banks lend all of their excess reserves. Then the maximum new money creation is ( ).

Definition Definition Capital reserves held by banks or financial institutions over and above the reserves that are required to be maintained by the regulator toward its liabilities and for internal controls. For commercial banks, excess reserve is the amount over the standard reserve as decided by the central bank. These excess reserve funds are available in the form of cash and cash equivalents.

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