The National Bank of the Undemocratic Republic of Swagnervania receives $1.5 mil

Question

The National Bank of the Undemocratic Republic of Swagnervania receives $1.5 million. The Federal Reserve of the Undemocratic Republic of Swagnervania stipulates all commercial banks use a required reserve ratio of 7%. Calculate the National Bank of the Undemocratic Republic of Swagnervania excess reserves. What is the maximum amount of money that can be created by this $1.5 million? What economically defendable explanation is there for the National Bank of the Undemocratic Republic of Swagnervania to get the $1.5 million in the first place? (5 points) --how do you get the multiplier, please show or explain!!

Explanation / Answer

Ans:

Received amount = $1.5 million

Reserve ratio = 7% = 0.07

Money multiplier = 1 / 0.07 = 14.29

The maximum amount created = $1.5 * 14.29 = $21.43 million.

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