No Textbook. What will happen to the money supply under the followingcircumstanc

Question

No Textbook.
What will happen to the money supply under the followingcircumstances? a) The required reserve ratio is 25% and a depositor withdraws$700 from his checkable bank deposit. b) The required reserve ratio is 20% and a customer deposits$750 into her checkable bank deposit.
Thanks for your help!
What will happen to the money supply under the followingcircumstances? a) The required reserve ratio is 25% and a depositor withdraws$700 from his checkable bank deposit. b) The required reserve ratio is 20% and a customer deposits$750 into her checkable bank deposit.
Thanks for your help!

Explanation / Answer

Remember the money multiplier is 1 / RRR, so in (a) it is 4 and in(b) it is 5. Withdrawing $700 thus decreases the money supply by$2100 in (a) and depositing $750 increases it by $3000 (you need tosubtract a factor of 1 from the multiplier since, in the originaltransaction, no money is added to the money supply; both currencyand checkable deposits are money).

Related Questions

Navigate

• Browse (All)
• Browse N
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.