Economics of Money, Banking and Financial Markets, The, Business School Edition (5th Edition) (What's New in Economics)
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Chapter 17, Problem 14Q
To determine

The effect on supply and multiplier process with Federal Reserve’s move to pay interest on the excess reserve amount held by banks.

Given:

Federal Reserve began paying interest on amount of excess reserves held by banks in October 2008.

Concept Introduction:

Money supply − Money supply refers to the monetary aggregate that goes beyond the monetary base including other assets also, which could be less liquid in form.

Multiplier process − The preliminary change to the total demand results in more considerable changes on the level of equilibrium national income, this is known as multiplier effect. The multiplier process is the one wherein the ultimate effect occurs due to the initial process.

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