Suppose the currency-to-deposit ratio is 0.25, the excess reserve-to-deposit rat

Question

Suppose the currency-to-deposit ratio is 0.25, the excess reserve-to-deposit ratio is 007, and the reqpuired reserve t is 005. Which wil have a larger impact on the money multiplier a rise of 0 05 in the currency ratio or in the excess reserve ratio? Instructions: Enter your response rounded to two decimal places 0130:00) Initially, the money multiplier is m- If the currency-to-deposit ratio rises to O.3, the multiplier will be m- If, instead, the excess reserve-to-deposit ratio rises, the multiplier will be m- So, multiplier falls by more with the increase in the (Click to select)

Explanation / Answer

1. m=1/rr = 1/0.05 = 20

2. The formula , multiplier =(1+cu)/(cu+r+e)
= (1+0.25)/(0.25+0.07+0.05)=3.38
= (1+0.3)/(0.3+0.07+0.05)=3.1

3. = (1+0.25)/(0.25+0.13+0.05)=2.91
So, multiplier falls by more with the increase in the excess reserve ratio

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