Question
Hello, here is my question: Suppose the required reserve ratio is 10%. a. What is the simple money multiplier? b. Based on the multiplier calculated
Hello, here is my question:
Suppose the required reserve ratio is 10%.
a. What is the simple money multiplier?
b. Based on the multiplier calculated in part a, if the central bank makes open market purchases of $100 billion, how much will the money supply increase?
c. What will happen to interest rates?
d. How will the central bank know when to stop making open market purchases?
e. Suppose banks, on average, hold an extra 10 percent of deposits as excess reserves, above the required reserve ratio. What would the actual money multiplier be?
Please show the explanation calculations, thank you in advance!
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