To describe:To impact on the money supply if the
Answer to Problem 1TY
In order to attain a 10% reserve ratio, a deposit of 12$ million will lead to the increase in the money supply by a factor of 10 times.
Explanation of Solution
Money multiplier can be defined as a cash multiplier is one of different firmly related proportions of commercial bank cash to central bank cash under a partial hold banking framework.
Change in the money supply
In the economy it can be assumed that the banks had no
So, in order to calculate the money supply, the following equation can be employed:
MS = D×1/m ……………….. (1)
Here,
MS=money supply
D= deposit change value
M= required reserve ratio
So, according to the given condition the change in the money supply can be calculated as;
MS=12000000×1/0.10
=120,000,000
Thus the deposit of 12$ million will lead to an increase in the money supply by a factor of 10, that will be 120 $ million.
Introduction: In monetary economics, a cash multiplier is one of different firmly related proportions of commercial bank cash to central bank cash under a partial hold banking framework. It identifies with the most extreme measure of commercial bank cash that can be made, given a specific measure of central bank cash.
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Macroeconomics: Principles and Policy (MindTap Course List)
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