
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Most people in the country of Classica tend to keep $3 out of every $100 of their cash holdings in their wallets. The central bank has instructed the commercial banks to also hold 4% of all bank deposits as reserves.
Calculate the extended money multiplier
Extended Money Multiplier = (1+C/D) / (R/D+C/D)
(1+0.03) / (0.04+0.03)
= 14.71
The extended money multiplier is 14.71
Suppose that in 2018 customers deposit $4,000 into their bank accounts. Based on the extended money multiplier calculated in part (i), calculate the total amount which the money supply in the banking system will eventually increase to. Show all steps involved in the calculation.
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