QUESTION 3

Go to the Course Documents at Blackboard and find the file requiredreservesarticle.pdf within the Homework #4 material folder. This file is also available at the link below: http://www.frbsf.org/education/activities/drecon/2001/0108.html . In answering these questions, you want to use the simple money multiplier discussed in class.

Find what the article says about the required reserve ratio, effective as of December 28, 2000. For simplicity, assume that all banks in the US economy are small (e.g. each bank has only $20 million in net transaction accounts, or demand and checkable accounts).

Using the money multiplier from class and the required reserve ratio that would exist in this economy (given the assumption above), an increase in excess reserves of $9 million would cause the money supply to expand by $ _________ million (fill in the blank below).

Note that the $ and "million" are already provided with the answer, so if (for example) you get $450,000,000 as an answer, then you express that answer as 450. Do not include any decimal points, and round your answer to the nearest whole number (e.g. $333,666,999.11 would be 334).