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Assume that the banking system has total reserves of $100 billion. Assume also that required reserves are 10 percent of checking deposits and that banks hold no excess reserves and households hold no currency. a. What is the money multiplier? What is the money supply? b. If the Fed now raises required reserves to 20 percent of deposits, what are the change in reserves and the change in the money supply?

BuyFind

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781337091985
BuyFind

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781337091985

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Chapter
Section
Chapter 11, Problem 10PA
Textbook Problem

Assume that the banking system has total reserves of $100 billion. Assume also that required reserves are 10 percent of checking deposits and that banks hold no excess reserves and households hold no currency.

a. What is the money multiplier? What is the money supply?

b. If the Fed now raises required reserves to 20 percent of deposits, what are the change in reserves and the change in the money supply?

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