China lowers reserve requirements

ThePeople's Bank of China lowered the required reserve ratio from 17.5 percent to 17percent, noting that it remained much higher than in other countries.

Source: Bloomberg News, February29, 2016

If the currency drain ratio in China is 10 percent of deposits and the desired reserve ratio equals the required reserveratio, calculate the money multiplier in China and compare it with the U.S. money multiplier.

Assume that the required reserve ratio in the United States is 10percent, the required reserve ratio in China is 17percent, and the currency drain ratio in both countries is 10 percent of deposits.

1) The money multiplier in China is _________.

2) The money multiplier in the United States is ___________.

3) When the required reserve ratio in China is 17.5 percent and the currency drain ratio is 10 percent ofdeposits, the money multiplier in China is __________.

4) When the required reserve ratio in China is 17.0 percent and the currency drain ratio is 10 percent ofdeposits, the money multiplier in China is _________.

5) When the required reserve ratio in China decreases from 17.5 percent to 17.0percent, the money multiplier _(increases/decreases)_ by ___________ .