Score: 0 of 1 pt 80, 30 (27 complete) HW Score: 80%, 24 of 30 pts Question Help

Question

Score: 0 of 1 pt 80, 30 (27 complete) HW Score: 80%, 24 of 30 pts Question Help Text Problem 2.2 .5 billen in traveler's checks, and $1.-514.1 billon in checking deposits. The U.S. money supply (M1) at the beginning of 2015 was $2,683.3 bilin broken down as follows: $1,165, 7 billion in ourrancy. $3 Suppose the Fed decided to decrease the money supply by increasing the reserve requirement from 10 parcent to 11 percent Assume al banke wore initisily lsaned up (had no excess reserves) and the quantity of currency and traveler's chocks held outside of banks did not change How large a change in the money supply would have The money supply would change by sbilion (Round your response to two decimal plnces and inaludte a minua sion necossary) resulted from the change in the reserve requiremert?

Explanation / Answer

we have checking deposits of $1514.1 billion.

when reserve requirement is 10

then money multiplier = 1/10% = 10

money supply = 1514.1*10= 15141

reserve requirement ratio increases to 11%

therefore money multipler = 1/ 11% = 1/0.11 = 9.09

therefore,money supply decreases to = 1514.1 *9.09 = 13763.169

change in money supply = 15141 - 13769.169 = 1371.831

so money supply changes by $1371.831

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