choose either decreases or increases You take $150 you had kept under your mattr
ID: 1118118 • Letter: C
Question
choose either decreases or increases
You take $150 you had kept under your mattress and deposit it in your bank account. Suppose this $150 stays in the banking system as reserves and banks hold reserves equal to 12.5 percent of deposits. The total amount of deposits in the banking system increases by S , and the money supply increases by Assume that the banking system has total reserves of $180 billion. Assume also that required reserves are 20 percent of checking deposits and that banks hold no excess reserves and households hold no currency The money multiplier is The money supply is billion Suppose the Fed raises required reserves to 25 percent of deposits. The new money multiplier is ,and the money supplyY 7to illx TIExplanation / Answer
The total amount of deposits in the banking system increases by 131.25 (150*0.125) and the money supply increases by 1050 (131.25*8), here 8 is the multiplier = 1/0.125=8
The money multiplier = 1/0.2=5
The money supply is 180*5= $900 billion
The new money multiplier is = 1/0.25= 4, and the money supply decreases to $720 billion
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