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A 2 - 2 . The Chinese central bank ( PBOC ) recently lowered its required reserve ratio for banks in China. If we assume

2 - 2 .

The Chinese central bank

(

PBOC

)

recently lowered its required reserve ratio for banks in China. If we

assume that the initial balance sheet of the banking system is as shown below, and that everyone holds

all their money in the banking system, and that the reserve ratio is decreased from

10 %

5 %,

both

loans and the money supply will increase by

1000 .

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