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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Reserves change by $10 million and the money supply changes by $50 million. What does the simple deposit multiplier equal? What does the required reserve ratio equal?

To determine

The change in money supply.

Explanation

It is given that the change in reserves (ΔR) is $ 10 million, and the changes in money supply is $50 million.

It is known that the change in money supply can be calculated using Equation (1) as follows:

Change in money supply=1r×(ΔR)        (1)

The simple deposit multiplier (1r) can be calculated by rearranging Equation (1) as follows:

1r=Change in money supplyΔR

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