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1. When a central bank increases bank reserves by $1, the money supply rises by more than $1. The amount of extra money created when
1.When a central bank increases bank reserves by $1, the money supply rises by more than $1. The amount of extra money created when the central bank increases bank reserves by $1 is called the money multiplier. Explain and demonstrate the intuition behind the money multiplier. What action could the central bank take if it wants to increase the money multiplier? What might be the reasons behind this move?
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