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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

Suppose the banking system has $40 billion in reserves. Also assume that there are no cash leakages or excess reserves. If the Fed lowers the required reserve ratio from 20 percent to 15 percent, checkable deposits (the money supply) will ultimately rise by how many millions of dollars?

To determine

The change in money supply.

Explanation

It is given that the total reserves (R) is $ 40 million and the reduction in required ratio (r) is 5 percent (2015).

The change in money supply can be calculated by substituting the respective values in Equation (1) as follows:

Change in money supply=1Δr

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