Score: 0 of 1 pt 8of30(19 complete) Hw Score: 63.33%, 19 of 30 : Text Problem 2.

Question

Score: 0 of 1 pt 8of30(19 complete) Hw Score: 63.33%, 19 of 30 : Text Problem 2.2 Question Help The U.S. money supply (M1) at the beginning of 2015 was $2,6833 billion broken down as follows: $1,165.7 bilion in currency, $3.5 billion in travelers checks, and $1,514.1 billion in chacking deposits Suppose the Fed decided to increase the money supply by decreasing the reserve requirement from 8 percent to 7 percent. Assume all banks were initially lbaned up (had no excess reserves) and the quanity of currency and travelers checks held outside of banks did not change How large a change in the money supply would have resulted fom the change in the reserve requirement? The money supply would change by S bilon (Round yourresponie to two dermal places and incude amnus s rf necessary)

Explanation / Answer

Initial money supply = 2683.3

since banks are fully loaned up

so total money creation is given by = initial amount of money supply/required reserve ratio

at r = 8%

= 0.08

total money supply at r = 0.08

= 2683.3/0.08

= 33541.25

since r chages from 8% to 7%

so now total money supply = 2683.3/0.07

= 38332.85

so money supply has increased by 4791.60 billion

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