ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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China Cuts Reserve Requirements

Beijing—China's central bank reduced the amount of reserves commercial banks are required to hold, freeing up money for lending in the latest easing measure to shore up the world's second-largest economy.

The People's Bank of China's percentage point cut in the reserve requirement lowers the reserve-requirement ratio, or RRR, to 11.5 percent for large banks. The move frees up about US$79 billion in additional funds that banks can now lend.

What was the money multiplier in China before the change in reserve requirements? 

Expert Solution
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Step 1: Define Multiplier

A multiplier can be defined as an economic factor that, when changed, result to changes in several other related economic variables. The money multiplier will be computed as 1/r where r means the reserve ratio. 

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