Question 3 (a) Distinguish between legally required reserves and excess reserves. (b) Why don't banks hold a 100 percent reserves? How is the amount of reserves bank hold related to the amount of mone y the banking system creates? Assume that Lucky Bank is required to hold a 10% depos its as reserves, and there is a $3000 inc rease in demand depos its. i. Calculate the money multiplier? ii. How much additional new demand deposits could the $3,000 depos it support?

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